Student Loan Overhaul: New Repayment Plans Take Effect Amidst Controversy
Student Loan Overhaul: New Repayment Plans Take Effect Amidst Controversy
Millions of federal student-loan borrowers are set to face significant changes to their repayment options following the passage of a major spending package. The legislation, championed by the current administration, eliminates existing income-driven repayment plans, including the former SAVE plan, and introduces two new, less generous alternatives.
The first new option, the Repayment Assistance Plan, will cap payments at 1% to 10% of a borrower’s income, with a minimum monthly payment of $10. While unpaid interest is waived and any remaining balance is forgiven after 30 years, this plan is notably less favorable than the previous SAVE plan, which offered faster forgiveness for smaller balances and lower payment percentages for undergraduate loans. Borrowers currently enrolled in the SAVE plan, which has been legally challenged, will have a transition period between July 2026 and July 2028 to switch to a new plan.
The second option is a revised standard repayment plan, featuring fixed payments over 10 to 25 years, with the period determined by the original loan balance. Furthermore, the bill restricts borrowers’ ability to defer payments due to economic hardship or unemployment, making standard forbearance the primary option for delaying payments. It also eliminates the graduate PLUS program and imposes a $65,000 lifetime cap on the parent PLUS program.
Proponents of the bill, including Education Secretary Linda McMahon, argue it simplifies the complex student loan system and helps curb rising tuition costs. However, borrower advocates and Democratic lawmakers, such as Senator Elizabeth Warren, contend that the changes will increase payments for many Americans and deepen financial insecurity for millions of borrowers.
In addition to repayment changes, the legislation introduces new accountability measures for colleges, potentially revoking federal student-loan eligibility for programs where graduates do not earn more than the median high school graduate in their state. It also extends Pell Grant eligibility to shorter-term educational programs.
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