Douglas Olsen
Student loan repayment plans are a constantly evolving landscape, with the Covid pandemic causing significant changes to the repayment process. The US Department of Education announced in May 2025 that it would resume collections of defaulted federal student loans, impacting millions of borrowers. The previous administration's pause on processing repayment applications and the legal limbo of certain repayment plans have added to the confusion. New repayment plans and caps on graduate loans are set to begin in July 2026, offering a revised standard plan and an income-driven plan. The impact of these changes on borrowers, especially those with existing loans, remains to be seen.
| Characteristics | Values |
|---|---|
| Number of borrowers with outstanding federal student loans | 42.5 million |
| Number of borrowers enrolled in an income-driven repayment (IDR) plan | 12.3 million |
| Percentage of borrowers enrolled in an IDR plan | 29% |
| New standard repayment plan | Tiered repayment schedule based on borrowers' loan balances |
| Borrowers affected by the new standard repayment plan | All undergraduate and graduate loan borrowers who take out a new loan on or after July 1, 2026 |
| Repayment Assistance Plan (RAP) | New income-driven repayment plan with a minimum monthly payment of $10 |
| Borrowers affected by RAP | Undergraduate and graduate loan borrowers who take out loans on or after July 1, 2026 |
| Previous repayment plans no longer available | IDR plans, extended repayment, graduated repayment |
| Borrowers affected by the change | New borrowers who take out loans after July 1, 2026 |
| Resumption of defaulted federal student loan collections | May 5, 2025 |
| Number of borrowers in default | 5 million+ |
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What You'll Learn
Student loan repayment plans are changing
Student loan repayment plans are undergoing significant changes, affecting both current and future borrowers. The US Department of Education has announced the resumption of collections on defaulted federal student loans, impacting borrowers who have been in limbo due to previous pauses on loan repayments.
The Department is also authorizing guaranty agencies to initiate involuntary collection activities on loans under the Federal Family Education Loan Program. These changes aim to protect taxpayers from bearing the burden of federal student loans. As of May 2025, the Treasury Offset Program will restart, and borrowers in default will be contacted to make monthly payments or enroll in repayment plans.
The Trump administration's new tax and spending law brings sweeping changes to the federal student loan system. The Department of Education's decision to scrap most existing repayment plans could lead to payment spikes for nearly half a million borrowers. The law introduces lifetime borrowing caps and significantly impacts Parent PLUS borrowers, who should consider consolidating their loans before July 1, 2026, to preserve their repayment options.
The SAVE (Saving on a Valuable Education) plan, a Biden-era repayment initiative, is also set to be eliminated, likely resulting in increased monthly payments for those enrolled. The Big Bill, which ends the SAVE Plan and other income-driven repayment options, will leave only the Income-Based Repayment (IBR) Plan and RAP Plans available after July 1, 2028. These changes will impact borrowers' rights and repayment options, making it crucial for borrowers to stay informed about updates from the Department of Education and their loan servicers.
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Income-driven repayment plans
Income-driven repayment (IDR) plans are designed to help student loan borrowers manage their loan repayments when they have a low income. Under IDR plans, repayments are set as a fraction of discretionary income rather than a fixed payment for ten years. This means that borrowers only have to make payments when their income is above a certain threshold. The threshold is based on the federal poverty line and varies depending on the specific IDR plan, typically ranging from 100-225%.
However, there are currently legal challenges surrounding IDR plans, with the newest IDR plan developed by the Biden administration facing litigation. This has left most IDR plans in a state of legal limbo. In response, the House has passed a bill proposing significant changes to the student loan program, including the introduction of a new Repayment Assistance Plan (RAP) to replace existing IDR plans. The Senate version of the bill also includes similar loan repayment provisions.
One key difference between RAP and existing IDR plans is the introduction of a minimum monthly payment of $10, regardless of the borrower's income. This represents a shift from IDR plans, where borrowers with incomes below the protected income threshold are not required to make any payments. The minimum payment requirement aims to encourage timely repayment, foster a sense of accountability among borrowers, and distinguish loans from grants. It is argued that even a small payment can help borrowers understand their repayment obligations and develop good habits. Additionally, RAP ensures that borrowers' balances decline by at least $10 per month when timely payments are made, providing a psychological benefit.
On the other hand, critics argue that even a $10 monthly payment may pose a financial hardship for some borrowers, particularly those with stagnant incomes. The extended length of repayment under RAP may deter some borrowers from switching from their current IDR plans, even if it could be more beneficial in the long run. While RAP aims to streamline the repayment process and encourage engagement, it may also increase hassle costs and potentially lengthen the overall repayment period for some borrowers.
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Student loan forgiveness
The COVID-19 pandemic has positively impacted student loan forgiveness in the US, with federal student loan borrowers not having to make monthly payments between March 2020 and May 2022. These months, however, will count towards income-driven repayment forgiveness or the Public Service Loan Forgiveness program. Borrowers who have lost their jobs or had lower incomes due to COVID-19 can re-certify their income to recalculate their monthly payments through an income-driven payment plan. This can be done over the phone instead of via an online application, making the process easier and quicker.
The tax break on college debt cancellations in the COVID-19 relief package signed by President Joe Biden has also removed a potential barrier to forgiving student loan debt. Previously, any amount forgiven under the income-driven repayment forgiveness program was reported to the IRS as income and taxed according to the borrower's tax bracket. Now, any debt forgiven from December 31, 2020, to January 1, 2026, will not be counted as income. This means that borrowers will not be burdened with unexpected taxes on top of their existing debt.
Despite these positive developments, there is still no legislation or executive order that confirms whether, how much, or when forgiveness will occur. Additionally, consolidating your student loans will reset your progress towards loan forgiveness to zero, with the exception of the new PSLF waiver. The Biden administration has also been criticized for keeping borrowers in limbo by refusing to lift the collections pause, which has resulted in a backlog of applications for income-driven repayment plans.
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Student loan reimbursement programs
The US Department of Education announced that its Office of Federal Student Aid (FSA) would resume collections of defaulted federal student loans. The Department had not collected on defaulted loans since March 2020. The resumption of collections aims to protect taxpayers from the burden of federal student loans. While Congress mandated that borrowers start repaying their student loans in October 2023, the Biden-Harris Administration refused to lift the pause, leaving borrowers in limbo.
The FSA will restart the Treasury Offset Program on May 5, 2025, and borrowers in default will be notified via email. They will be urged to contact the Default Resolution Group to make monthly payments, enroll in an income-driven repayment plan, or sign up for loan rehabilitation. The Department will also authorize guarantee agencies to begin involuntary collection activities on loans under the Federal Family Education Loan Program.
Student loan forgiveness programs can help erase some or all of your higher education debt. The US government offers forgiveness options for federal student loan borrowers, typically targeting those with lower incomes, large amounts of debt, or public service jobs. Income-driven repayment (IDR) plans allow borrowers to cap their loan payments at a percentage of their monthly discretionary income, with payments as low as $0 per month. After 20 or 25 years, depending on the plan, the remaining loan balance may be eligible for forgiveness. Public Service Loan Forgiveness (PSLF) is another option for government and qualifying nonprofit employees with federal student loans. Eligible borrowers can have their remaining loan balance forgiven tax-free after making 120 qualifying loan payments on an IDR plan and 10 years of full-time public service work. Teachers employed full-time in low-income public schools may be eligible for Teacher Loan Forgiveness, with up to $17,500 in federal direct or Stafford loans forgiven after five consecutive years of teaching.
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Student loan default
As of April 2025, about 5.8 million federal student loan borrowers (roughly 31%) were 90 days or more past due on their payments, with US federal student loan debt totalling almost $1.7 trillion. The high delinquency and default rates are attributed to the end of the pandemic-era repayment relief. As of September 2024, 4 million Direct Loan borrowers and 2.8 million FFEL borrowers remained in default.
The transition back into repayment has been bumpy and confusing, with the Trump administration's new tax and spending law bringing sweeping changes to the federal student loan system. The Department of Education scrapped most existing repayment plans, and the law imposes new lifetime borrowing caps. These changes have left borrowers in a state of limbo, with limited access to assistance in getting back on track. The Education Department has been gutted, with hundreds of experts leaving, hindering their ability to identify and correct servicing issues and communicate with borrowers.
To prevent a default disaster, policymakers should make it easier for those already in default to get out of it. This includes allowing access to affordable repayment plans and restoring the ability to discharge student debt through bankruptcy. Additionally, the Department should provide clear direction and resources to loan servicers to implement changes and process applications timely.
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Frequently asked questions
The U.S. Department of Education announced that it would resume collections of defaulted federal student loans starting May 5, 2025. The department had paused collections since March 2020 due to the COVID-19 pandemic.
The Trump administration's One Big Beautiful Bill (OBBB) introduced a tiered repayment schedule based on borrowers' loan balances. The new standard repayment plan applies to new loans taken out on or after July 1, 2026.
The Repayment Assistance Plan (RAP) is an income-driven repayment plan that bases payments on the borrower's income. RAP requires a minimum monthly payment of $10 and waives interest if the payment doesn't cover the full amount.
Connecticut has a Student Loan Reimbursement Program that offers up to $5,000 per year for a maximum of $20,000 per eligible borrower. Applicants must meet certain residency, income, and volunteer service requirements and have an outstanding student loan balance.
The Biden administration has announced new measures to help borrowers struggling with their payments. You can also explore income-driven repayment plans or loan rehabilitation programs to find a more affordable payment plan.
