Student loan borrowers’ options are dwindling and time is not on their side as the Trump administration turns up the heat to get all borrowers back in repayment.
The recently passed “big, beautiful bill” will take the bevy of choices away from borrowers by 2028, leaving only two options for repayment.
Those on the Biden administration’s Saving on Valuable Education (SAVE) plan who have been in forbearance have even less time, with interest accrual restarting next month.
Student loan advocates are encouraging borrowers to reach out for help in understanding their options as they fear many will not be able to afford their monthly repayment plans with the plans left for them.
“It feels like a flood-the-zone type situation where confusion is part of the intent,” said Natalia Abrams, president of the Student Debt Crisis Center (SDCC), adding, “the hits just keep coming.”
The slate of changes rolled out, she said, “feels reckless in terms of treatment towards student loan borrowers and for Americans at large.”
After years of pauses, on-ramps and forbearances from the start of the pandemic in President Trump’s first term through the Biden administration, the White House is now requiring all borrowers to begin repaying their loans by the end of Trump’s second.
The millions of borrowers on the SAVE plan have been in forbearance with no interest since that Biden program was ruled illegal by the 8th U.S. Circuit Court of Appeals last year. The SAVE plan made it so some borrowers had to pay as low as $0 a month.
The government said those in the SAVE plan will have to switch to a different option for payments to start counting towards their loan forgiveness, but people can stay in the plan and just pay interest potentially until summer 2026.
An analysis from the Student Borrower Protection Center found the typical borrower will pay more than $3,500 in interest charges per year due to the policy change.
The decision to switch out of the plan by Aug. 1 or just pay the interest is a personal one.
“Every single borrower’s financial situation is so different. For borrowers who are truly unable to afford to make payments, remaining on the SAVE forbearance might be their best option,” said Aissa Canchola Bañez, policy director for the Student Borrower Protection Center.
“But for borrowers who are on the SAVE forbearance” but want to take advantage of the Public Service Loan Forgiveness Program, “it’s been our advice that folks should try to get off of SAVE so that they can begin making payments and begin earning credit towards” forgiveness, she added.
Experts also advise those leaving SAVE to wait until the Aug. 1 deadline so the interest is taken care of “throughout the entire month of July” and a borrower does not get on the hook for it with a new plan, Abrams said.
Over the next three years, all borrowers will be forced into the two repayment options that were passed under Trump’s “big, beautiful bill.”
The act only leaves borrowers with a standard repayment plan, which includes 10-25 years of repayments depending on the loan amount, and a new Repayment Assistance Plan (RAP), which takes into account a person’s income but lengthens the amount of time spent on repayment.
RAP is “based on their income. Low-income borrowers can make payments as low as $10 a month, but unlike past income driven repayment plans, they’re going to have to repay on their loans for longer. The span soon will be 30 years … So [the department is] making things simpler, they’re trying to make things easier and they’re trying to prevent students from being burdened with excessive debt,” said Angela Morabito, spokesperson for the Defense of Freedom Institute.
The Trump administration and conservatives argue the policy changes are “compassionate,” saying borrowers agreed to these loans and have to pay them back.
“No one should be panicking over this. This is a really thoughtful and strategic and compassionate way to try and solve the student loan crisis that the past administration, quite frankly, made so much worse,” Morabito said.
“The fact of the matter is, whenever you take out a loan, no matter what loan it is, you agree to pay it back. Borrowers made that agreement. They need to pay their loans back. They’ve had a long break, if anything, should make repayment easier that they’ve had so much time to plan and prepare,” she added. “But if anyone was under the impression that they would just never have to pay loans back, that’s because they were lied to by people who don’t have the best interests of students and taxpayers at heart.”
Others advocates, however, predict the changes will devastate some borrowers, with more defaults on the horizon and misinformation making it hard to navigate the situation.
One of the biggest concerns for borrowers is the backlog of almost 2 million applications for the income-driven repayment programs as the administration pushes students to sign up for these options.
The backlog began under the Biden administration, and resumption of application processing only restarted in April of this year.
“The Biden Administration failed to process income-driven repayment applications for borrowers, artificially masking rising delinquency and default rates and promising illegal student loan forgiveness to win points with voters. The Trump Administration is actively working with federal student loan servicers and hopes to clear the Biden backlog over the next few months,” said Ellen Keast, deputy press secretary for the Education Department.
Student loan advocates are encouraging borrowers to reach out to nonprofit organizations and the federal government when figuring out their next steps, as scams abound.
Even experts on the issue have struggled to understand the new landscape as the federal government said other student loan repayment options will phase out between the summer of 2026 and the summer of 2028, but it isn’t clear what those two years will look like for borrowers or when it would be most advantageous for borrowers to leave their current plans.
“Borrowers are feeling so much anxiety right now. The bill makes ginormous changes to our student loan system. It very much feels like there’s no clear answer on what borrowers can or should be doing right now,” Bañez said.
While those advocating for broader student loan forgiveness don’t see much cause for hope under the Trump administration, they were encouraged the GOP legislation did not take away the future possibility of debt relief, potentially under a different administration.
“The only other small silver lining … is they were able to get rid of the piece [in the Senate bill] where they were trying to take away the secretary’s ability to cancel student loans or make big changes to the student loan program. That got thrown out in the bird bath and so … [there is] a little bit of hope that we can pull to actually change these very bad policies that have been done” in the future, Abrams said.
Source link
