The 43 million Americans who currently have federal student loan debt are experiencing a kind of quiet anxiety that isn’t quite panic, but rather the constant unease of seeing regulations change more quickly than anyone can comprehend. The majority of borrowers have been instructed to keep an eye on July 1. In an effort to help people understand what’s coming, the Education Department released updated guidance last week. Although the effort is sincere, the picture it presents is so complex that even borrowers who are financially literate are having difficulty understanding it.
The One Big Beautiful Bill Act, which President Trump signed into law almost a year ago, is the source of the modifications. The scope of the changes is wide, and implementation begins on July 1. Plans for repayment are being reorganized. There is a cap on borrowing limits. Certain avenues for forgiveness are becoming more limited. The well-liked SAVE plan, an income-driven option from the Biden administration that enrolled over seven million people, many of whom were eligible for a $0 monthly payment, is formally coming to an end. It is anticipated that loan servicers will notify borrowers who are still enrolled in SAVE, starting a 90-day window to select an alternative. The department claims to handle it for them if they don’t make a decision, putting them in one of the least flexible repayment options.
A large portion of what is being retired is being replaced by two new repayment plans. The Repayment Assistance Plan, or RAP, uses adjusted gross income to determine monthly payments and has a clause that waives monthly interest that exceeds the payment amount. This feature may seem comforting, but it requires 30 years of repayment, not just 20. The other new option is the Tiered Standard Plan, which functions similarly to the previous Standard plan in terms of predictability but distributes payments over varying time periods based on the amount you owe. If a borrower’s balance exceeds $100,000, they may be placed on a 25-year schedule.
Graduate students may be most affected by the biggest new restrictions. In the past, graduate students could borrow up to the total annual cost of their program. The new regulations reduce that cap to $20,500 per year, with a $100,000 maximum. A higher cap of $50,000 per year will be available for a limited number of professional degrees, including those in medicine, law, dentistry, and a few others. However, fields like nursing and social work are not included in this list, which has already sparked lawsuits from several states concerned about the potential effects on the healthcare workforce.
Public Service Loan Forgiveness is unaffected by the change, but there are some new issues. For borrowers who make 120 qualifying payments over the course of ten years of public service, the program still promises to cancel any outstanding balances. However, beginning on July 1, employees whose employers are found to have engaged in activities with a “substantial illegal purpose” may not be forgiven by the Education Department. The meaning of that phrase is defined by the secretary of education. Late last year, a number of cities, including Boston and Chicago, filed a lawsuit over the clause because they were worried it might be used to exclude employees based on the policy stances of their local government. There is still no resolution to that legal battle.
It’s difficult not to sympathize with borrowers who are attempting to deal with all of this in real time. Although the department maintains a loan simulator tool and has released updated guidance, it is truly challenging to find the correct answer without spending hours reading the fine print due to the sheer number of plan variations, eligibility requirements, and transition timelines. Reporters have been informed by financial aid experts that the move away from SAVE could hasten an already rising default rate, especially for lower-income borrowers who were making no payments under it.
The deadline of July 1st is obviously not a soft one. If borrowers do nothing, they will probably wind up in more expensive plans. The Education Department’s recommendations are a good place to start, but most people probably won’t be able to make an informed choice without further assistance.
