NEW YORK — It has been a confusing time for those who received student loans in the United States. Collections resumed and then were paused. At the same time, borrowers had to stay abreast of changes to major forgiveness plans.
President Donald Trump’s “Big, Beautiful Bill” introduced new credit limits for graduates and posed challenges to the Public Service Loan Forgiveness program. While several of the changes for those with student loans will take effect this summer, other fundamental questions remain unanswered.
More than 5 million Americans were delinquent on their federal student loans as of September, according to the Department of Education. Millions are behind on their loans and at risk of defaulting this year.
Borrowers are “genuinely struggling to pay their loans, and to then find out that the government is making them more expensive and removing some of the tools and resources that help people pay them is really… panic-inducing,” lamented Winston Berkman-Breen, legal director of Protect Borrowers, a debtor advocacy group.
Last month, the Department of Education announced it would delay involuntary collections for student loan borrowers in default until the department finalizes its new payment plans. The date for this is not yet clear.
If you are a student loan debtor, here are some key things you will want to know:
If you were enrolled in the SAVE plan
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The Payment Plan for Quality Education (SAVE) was a payment plan with some of the most flexible terms in history. Shortly after its launch it was challenged in court, leaving millions of student loan debtors in limbo. Recently, the U.S. Court of Appeals for the 8th Circuit ordered the official termination of the SAVE plan. It is not yet determined what the future holds for borrowers enrolled in this payment plan.
“Seven and a half million borrowers currently enrolled in SAVE need to switch to another plan,” Berkman-Breen added.
The Department of Education is expected to develop a plan for borrowers to transition from the SAVE plan, but they must be proactive in signing up for other payment plans, said Kate Wood, a lending expert at NerdWallet, a personal finance company.
If you want to enroll in a payment plan based on your income
Borrowers can apply for the following plans based on their income: the Income-Based Repayment Plan, the As-You-Earn Repayment Plan, and the Income-Contingent Repayment Plan.
“They all have similar criteria and work in a similar way: Your payment is set as a percentage of your income, not the amount you owe, so it’s usually a lower payment,” Berkman-Breen explained.
The payment amount in income-driven plans is a percentage of your discretionary income, and the percentage varies by plan. Because many people need to change plans, some applications for income-based repayment plans may take longer to process, said Jill Desjean, director of policy analysis at the National Association of Student Financial Aid Administrators.
Find out which repayment plan may be best for you by accessing the loan simulator on the Department of Education site.
If you are working toward Public Service Loan Forgiveness
There are no changes yet to the Public Service Loan Forgiveness Program (PSLF). Last year, the Trump administration announced plans to change eligibility requirements for participating nonprofits.
The policy seeks to disqualify nonprofit workers if their work is deemed to have a “substantial unlawful purpose.” The Trump administration has said it is necessary to prevent lawbreakers from accessing taxpayer money, while critics say it turns the program into a tool of political retaliation.
The proposal states that illegal activities include trafficking or “chemical castration” of minors, illegal immigration and supporting foreign terrorist organizations. This measure could exclude some teachers, doctors and other public employees from federal loan forgiveness.
“This is something that is obviously very stressful, very distressing for a lot of people, but because we don’t know exactly how it’s going to be applied or how these terms are going to be defined, it’s not something you can plan ahead for right now,” Wood explained.
While this policy is already being challenged by 20 Democratic-governed states, it is expected to take effect in July. In the meantime, Wood recommends that borrowers enrolled in the PSLF program don’t miss payments.
If your student loans are in default
Involuntary collections on federal student loans will remain suspended. The Trump administration announced this month that it is delaying its plans to withhold payment from student loan borrowers who default on their payments.
Federal student loan borrowers can have their wages garnished and their federal tax refunds withheld if they default on their loans. A borrower is considered in default when they are at least 270 days late on their payments.
If your student loans are in default, contact your lender to apply for a rehabilitation program.
“Basically, they offer a payment plan where you make reduced payments,” Wood added. “After five successful payments into that rehabilitation plan, wage garnishment will cease.”
If you plan to pursue graduate studies
Trump’s “Big, Beautiful Bill” has changed the amount graduate students can borrow through federal loans. Previously, these students could borrow up to the full cost of their degree. However, the new rules limit the amount based on whether the program is considered an academic graduate or professional degree. Wood indicated that if you are starting a new program and apply for a loan after July 1, you will be subject to the new loan limits.
Under the new plan, students in professional programs will be able to apply for loans of up to $50,000 a year, and up to $200,000 in total.
Other graduate students, such as nursing and physical therapy students, will be capped at $20,500 per year and up to $100,000 total.
The Department of Education defines the following areas as professional programs: pharmacy, dentistry, veterinary medicine, chiropractic, law, medicine, optometry, osteopathy, podiatry and theology.
If you want to consolidate your loan
The online application for loan consolidation is available at studentaid.gov/loan-consolidation. If you have multiple federal student loans, you can combine them into one with a fixed interest rate and a single monthly payment.
The consolidation process is usually completed in about 60 days. You can only consolidate your loans once.
