Financial Planning
back
The student loan landscape has become so complicated that many borrowers who simply want to pay back their federal loans need a detailed road map.
Not only are the options mind-numbingly confusing, but one wrong move can throw borrowers in repayment off course, costing them even more time and money.
The many changes, created both by the giant reconciliation law and legal challenges to the President Joe Biden-era repayment plan known as SAVE, have left many borrowers frustrated and unsure of what to do next.
After all, the rulebook isn’t supposed to change once you’ve already entered the system, and there are still many unanswered questions. In the latest twist, the Trump administration proposed new rules that could restrict who can participate in the loan forgiveness program for public servants.
This guide will try to help you sort through your options as they stand now, alert you to hidden obstacles and let you know when you need to act with a sense of urgency given impending deadlines.
Are you enrolled in SAVE and unsure what your next move should be? A parent with PLUS loans? Or maybe you’re nearly done with income-driven repayment — and worried about getting loan forgiveness in time to avoid a giant tax bill.
We’ll cover that and more, and update this guide as the situation evolves.
Starting next summer, borrowers taking out fresh loans will have two new repayment plans to choose from, while at least a half-dozen existing programs will be eliminated, including the most affordable option: the Biden-era plan known as SAVE. The nearly 8 million people in that plan will soon need to figure out their next-best option.
The two new options include a standard repayment plan, and another program — the Repayment Assistance Program, or RAP — that’s philosophically similar to existing income-driven repayment plans. There are some benefits — RAP has interest subsidies, for example — but also drawbacks.
If you have existing federal loans but expect to take out new ones, the two new repayment plans (available starting July 1) will be your only options — even when it comes to paying your old loans.
To calculate your monthly payment under RAP, try the RAP calculator at studentloanplanner.com. Student Loan Planner is an advisory group that helps student borrowers.
I’m enrolled in SAVE, PAYE or ICR.
All of these plans — Saving for a Valuable Education, Pay as You Earn and Income-Contingent Repayment — will shut down by June 30, 2028. That means you will eventually need to choose a new plan.
SAVE borrowers have more to consider.
SAVE borrowers’ payments (and interest accrual) have been on hold since last summer because of legal challenges, but the Education Department began applying interest charges again Aug. 1.
For now, you can remain in forbearance, but those interest charges will accumulate, which is why moving to another plan may your best option.
Ultimately, you’ll need to switch by July 1, 2028, at the latest (when new legislation eliminates SAVE), but it’s also possible you’ll be asked to move before then because of the evolving legal charges against SAVE.
The Education Department is advising borrowers to use its loan-simulator tool to calculate monthly payments and determine the plan that best meets their goals, but it’s nudging people toward the Income-Based Repayment program since the IBR program will remain open to existing borrowers (as long as they do not take out new loans or consolidate after July 1, 2026). And it will enable SAVE enrollees to resume making qualifying payments and earn credit toward any potential loan forgiveness down the road.
IBR requires borrowers to pay 10% of their discretionary income toward their balance for 20 years, after which any remaining balance is forgiven. (That formula applies to borrowers with loans made after July 1, 2014. For loans taken before that, borrowers pay 15% of income over 25 years.)
There is at least one group that may want to stay put for now: SAVE borrowers nearing loan forgiveness through the Public Service Loan Forgiveness program.
I’m enrolled in PAYE or ICR. What do I need to know?
You don’t need to act immediately, but you’ll eventually need to figure out an alternative — both of these plans will be shuttered by July 1, 2028.
If you have no plans to take out any new loans, you’ll maintain access to at least one existing income-driven plan, IBR. PAYE borrowers (who took out their loans after 2014) are likely to have similar payments on IBR, while ICR enrollees would see their payments drop if they transferred into either IBR program.
You can use the Education Department’s loan simulator at studentaid.gov/loan-simulator to calculate your payments and compare your options. It will eventually incorporate the new plans, including the Repayment Assistance Program, or RAP.
There are four plans that are blocked from canceling student loans at the moment. The blocks for SAVE, PAYE and ICR are likely to be permanent, while the IBR one is only paused.
Last year, two groups of Republican-led states challenged the Biden-era SAVE repayment program in federal court, which froze that program while litigation was active. But a related court ruling this year questioned the Education Department’s authority to grant loan forgiveness in other long-standing income-driven plans, including PAYE and ICR. The Trump administration later halted forgiveness on those plans, too.
Regardless of what happens in the courts, the sprawling reconciliation law will shut them all down by July 1, 2028. They will be replaced by one income-driven repayment program, RAP, along with a standard repayment plan.
IBR, which was created by Congress, is still legally sound, yet loan forgiveness is paused here, too, while the Education Department ensures that certain payment counts are accurate. It’s unclear when IBR forgiveness will resume. The Education Department did not immediately respond to emails seeking comment.
How do I know how many qualifying payments I’ve made toward my income-driven plan?
The payment counters on the Federal Student Aid website — which tracked borrowers’ qualifying payments toward debt relief — were taken down by the Education Department this year while it ensured that certain payment counts were accurate. (The department did not immediately respond to inquiries seeking comment on when the counters would reappear.)
But there is a way to access payment counts after signing in through StudentAid.gov, though the interface isn’t the easiest to read. Still, take screenshots and keep all evidence of any and all payments made.
I’ve made (or am close to making) 25 years of income-driven payments, but loan forgiveness is blocked in my repayment plan. Now what?
You should probably move into IBR, the income-driven plan that was created by Congress and is still able to process forgiveness — though it’s temporarily halted at the moment.
“That is probably your safest bet,” said Abby Shafroth, director of Student Loan Borrower Assistance at the National Consumer Law Center, “in hopes that puts you in the best position of having your loans canceled this year.”
If you’re able to have your loans canceled this year, you can potentially avoid a large tax bill.
The tax break exempting canceled debt from taxes expires this year. Where does this leave borrowers?
Canceled student debt is usually taxed as income, but a temporary tax break made loan discharges from 2021 to 2025 exempt from federal taxation (some states may apply their own levies).
That means people who are near or at the end of their payment plans this year could escape the so-called tax bomb.
But with cancellation halted, will people who have reached the end of their plans make it under the wire?
Student loan experts, including Stanley Tate, a consumer lawyer who specializes in student loans, are cautiously optimistic, particularly for people who have 25 years of payments.
“If someone has already hit the 300-payment mark, my best guess is that their effective forgiveness date will be when they crossed the threshold — not when the forgiveness is processed,” he said.
Scott Buchanan, executive director of the Student Loan Servicing Alliance, also said that borrowers who had accumulated enough qualifying payments toward forgiveness this calendar year would probably not owe taxes, even if their cancellation was processed later.
If that didn’t happen, expect some type of legal action brought on behalf of borrowers.
I’m enrolled in an income-driven plan and have reached my number of qualifying payments, but I’m still getting billed. Should I continue to pay?
Probably — or ask your servicer to put your loans in forbearance. You want to keep your account in good standing, and the Education Department has said that anyone who is erroneously billed will be refunded after they are finished.
I’ve made 20 years of IDR payments (or I’m close), and my remaining debt was supposed to be wiped away. What should I do now?
Some borrowers enrolled in PAYE or SAVE who have made income-driven payments for 20 years (totaling 240 payments) would have been eligible for forgiveness had those plans not been blocked by legal challenges.
Now, regardless of what happens in the courts, the sweeping reconciliation law will kill those plans as of July 1, 2028. So the only option for borrowers under those plans, at least for now, is to move into IBR, the income-driven plan that will remain open to existing borrowers.
But that poses a problem: The version of IBR these borrowers are eligible for — yes, there are two versions — has a 25-year term with higher payments, or 15% of their discretionary income.
These borrowers have reason to be frustrated — the rules have changed on them, and not in their favor. “As you can imagine, these borrowers are very upset,” said Betsy Mayotte, president of the Institute of Student Loan Advisors, which provides free advice for borrowers.
Borrowers may want to stay put and monitor the situation for now. Mayotte said that even though it is “incredibly unlikely,” there is still a tiny chance the courts could allow them to get forgiveness after 20 years. There may also be lawsuits.
The PSLF program is open to government and nonprofit employees such as public schoolteachers, librarians and public defenders. After making 120 qualifying payments in an income-driven repayment plan — which requires at least 10 years of service in qualifying jobs — any remaining balance is wiped out.
What should I do if I’m enrolled in SAVE?
If you’re enrolled in SAVE, payments have been halted because of litigation, and you can’t make any payments toward forgiveness.
To receive PSLF credit, borrowers have two options:
You can move into another income-driven repayment plan (like IBR, which will enable you to start making qualifying payments and won’t be shut down) or you can remain in SAVE, at least for now.
For PSLF enrollees who have already spent 10 years (120 months) with a qualifying employer, it probably makes sense to stay in SAVE. They can use what’s known as the “buyback” opportunity, which allows borrowers to submit payments for the months spent in forbearance, making them eligible for forgiveness.
For the moment, SAVE enrollees who have completed buybacks have made catch-up payments based on what they would have had to pay in SAVE or REPAYE, the income-driven plan that SAVE replaced, experts said. Those plans, particularly SAVE, generally have the lowest payments.
But SAVE will be eliminated July 1, 2028, and it’s possible judges could shut it down before then. That’s why staying in the program is most practical for those who have reached the 10-year milestone (or are really close). For everyone else, there are no guarantees their buyback amounts will be based on the lower payments available under SAVE/REPAYE (at least compared with the older version of IBR), experts said.
Is PSLF processing forgiveness?
Yes, but slowly. Remember that debt forgiveness as part of PSLF is not taxable (ever).
Where can I find more help?
There’s an active Facebook group where PSLF borrowers share their experiences and servicer snafus. Knowledgeable group moderators also weigh in with helpful tips.
How is President Donald Trump trying to change PSLF?
The Trump administration recently proposed rules that could restrict who can participate in the program, making it easier to push out employers who engage in activities that it deems have “a substantial illegal purpose.”
Through the Trump administration’s lens, that could include groups providing support to immigrants without legal status, employers who incorporate diversity initiatives or providers of gender-affirming care to children under age 19. Some advocates worry that the administration's policy may be even more far-reaching, targeting sanctuary states and cities, or places that limit their cooperation with federal agencies’ efforts to deport immigrants. That could potentially disqualify government workers of all types who are employed there.
Many public servants have staked their financial futures on the program, and any changes could potentially upend their finances. The proposed rules, which are subject to a 30-day public comment period, are likely to face legal challenges.
Student aid experts say borrowers shouldn’t make any rash decisions based on this news.
They also point out that the rules would not affect any qualifying payments already made, but they would apply to enrolled borrowers going forward. If an employer were deemed ineligible, the borrower would be notified — and payments made after that determination would no longer be credited toward PSLF. Since the rule wouldn’t take effect until July 1, participants would be unaffected until then.
Borrowers should continue to track how the situation unfolds. Some legal experts argue that the Education Department does not have the authority to make these calls, but legal action wouldn’t follow until after the rules are formally issued, which is expected sometime in the fall.
“Our position is that this is already harming people,” said Winston Berkman-Breen, legal director at Student Borrower Protection Center. “Employers are already having employees second-guess their eligibility that could result in retention or recruitment harm to employers. We’re already having employers reach out and ask us for help.”
In its proposal, the Education Department estimated that restricting loan forgiveness would save the government $1.5 billion over 10 years. It also said it believes that fewer than 10 employers would be affected annually.
There are a few things happening: Parents who take out new PLUS loans on or after July 1 will have one option: the new standard repayment plan.
But if you have existing PLUS loans (taken before July 1) and affordability is a challenge, you can transfer into the IBR plan, tying monthly payments to your income level. There’s one potentially major deal-breaker: You can’t take out any more federal student loans after July 1, including loans for other children. (If you do, you’ll be kicked out of IBR.)
There is one workaround, said Mayotte of the Institute of Student Loan Advisors, which provides free advice for borrowers. If a student has two parents, the parent who did not take out the old loans can take out new ones on or after July 1, “so at least existing loans will still have access to IBR,” she added.
What do parent borrowers need to do to get into IBR?
Like most things with student loans, there are multiple steps and it feels needlessly complicated. There’s also a deadline, so you’ll need to act relatively soon.
PLUS loans must be consolidated into a Direct loan, and the consolidation loan must be disbursed no later than June 30. If you miss that deadline, you’ll be locked out of IBR for good.
There’s a second step: You’ll need to enroll in the ICR plan, the most expensive income-driven plan, and make one payment, according to the Education Department. After that, you’ll be able to enroll in IBR.
(Before the giant reconciliation law, parents generally had access only to ICR, generally 20% of discretionary income with a term of 25 years. It also required loans to be consolidated.)
The Education Department said it would share more information about ICR enrollment deadlines at a later date.
(For more details, see the Federal Student Aid website.)
I’m already enrolled in Income-Contingent Repayment. What should I do?
ICR participants should be able to transfer into IBR after July 1.
What are the consequences?
The Education Department began forced collections on loans in default May 5.
There are serious repercussions if the loans remain in default, which makes the balance immediately due. The government can take your entire tax refund (as long as it doesn’t exceed your debt amount) and up to 15% of monthly Social Security retirement and disability benefits and your paycheck. (The Treasury Offset program has a more comprehensive list of what’s eligible and what’s off limits.)
Wage garnishment is expected to begin this summer, though seizures from monthly benefits, including Social Security, have been put on hold.
Besides collections, the default will seriously damage your credit standing.
Where do I begin?
You still have options. If your loan is in default, or 270 days or more overdue, your first step should be to get in touch with the Federal Student Aid Office’s Default Resolution Group, which can help get your loan sorted. (You can check the status of your loans by logging into your account at StudentAid.gov.)
How can I get out of default?
You can pay the loan in full, but that’s not possible for most people.
More feasible alternatives include consolidating the defaulted loans or rehabilitating the loan, which requires making nine out of 10 consecutive “reasonable” payments, determined by loan holders using a formula.
It’s usually easiest to consolidate the defaulted loan (as long as you have more than one loan) into one federal Direct Consolidation Loan, which pays off the old ones.
But there are drawbacks, especially for borrowers in income-driven repayment plans (which forgive any remaining debt after a period, generally 20 years, of payments tied to your income and household size). After consolidation, you may lose any credit earned toward loan forgiveness.
Consolidating federal loans may be risky right now.
If you have already made qualifying payments in an income-driven repayment plan and want to continue on that path toward debt cancellation, consolidating your loans now could erase that progress.
The reasons trace back to the SAVE litigation: The Biden administration issued rules enabling borrowers to consolidate without losing credits toward income-driven repayment. But the rules were part of the SAVE regulatory package, which is caught up in litigation.
“Borrowers should be cautious about consolidating, and consider that they may lose all of their past IDR qualifying payments by consolidating until something changes in regulation, in the litigation, or the department’s interpretation of the court order,” said Shafroth of the National Consumer Law Center.
Is there any way to expedite my enrollment in an income-driven plan?
At the moment, it’s taking anywhere from a few days to a month for new applications to be processed, said Buchanan of the Student Loan Servicing Alliance. Applications tend to move more quickly if you allow the Education Department to gain access to your income data directly from the IRS.
Processing may take longer if your situation is more complicated — maybe your income situation has significantly changed, and you need to submit alternative documentation, for example.
Your loan will be put in an administrative forbearance if needed, which means your payment will be frozen until your application is processed (interest will continue to accrue).
How can I get more help?
A Guide to Student Loan Repayment
Not only are the options mind-numbingly confusing, but one wrong move can throw borrowers in repayment off course, costing them even more time and money.
The many changes, created both by the giant reconciliation law and legal challenges to the President Joe Biden-era repayment plan known as SAVE, have left many borrowers frustrated and unsure of what to do next.
After all, the rulebook isn’t supposed to change once you’ve already entered the system, and there are still many unanswered questions. In the latest twist, the Trump administration proposed new rules that could restrict who can participate in the loan forgiveness program for public servants.
This guide will try to help you sort through your options as they stand now, alert you to hidden obstacles and let you know when you need to act with a sense of urgency given impending deadlines.
Are you enrolled in SAVE and unsure what your next move should be? A parent with PLUS loans? Or maybe you’re nearly done with income-driven repayment — and worried about getting loan forgiveness in time to avoid a giant tax bill.
We’ll cover that and more, and update this guide as the situation evolves.
How are repayment options changing?
Starting next summer, borrowers taking out fresh loans will have two new repayment plans to choose from, while at least a half-dozen existing programs will be eliminated, including the most affordable option: the Biden-era plan known as SAVE. The nearly 8 million people in that plan will soon need to figure out their next-best option.
The two new options include a standard repayment plan, and another program — the Repayment Assistance Program, or RAP — that’s philosophically similar to existing income-driven repayment plans. There are some benefits — RAP has interest subsidies, for example — but also drawbacks.
If you have existing federal loans but expect to take out new ones, the two new repayment plans (available starting July 1) will be your only options — even when it comes to paying your old loans.
To calculate your monthly payment under RAP, try the RAP calculator at studentloanplanner.com. Student Loan Planner is an advisory group that helps student borrowers.
If you're enrolled in an income-driven repayment plan.
I’m enrolled in SAVE, PAYE or ICR.
All of these plans — Saving for a Valuable Education, Pay as You Earn and Income-Contingent Repayment — will shut down by June 30, 2028. That means you will eventually need to choose a new plan.
SAVE borrowers have more to consider.
SAVE borrowers’ payments (and interest accrual) have been on hold since last summer because of legal challenges, but the Education Department began applying interest charges again Aug. 1.
For now, you can remain in forbearance, but those interest charges will accumulate, which is why moving to another plan may your best option.
Ultimately, you’ll need to switch by July 1, 2028, at the latest (when new legislation eliminates SAVE), but it’s also possible you’ll be asked to move before then because of the evolving legal charges against SAVE.
The Education Department is advising borrowers to use its loan-simulator tool to calculate monthly payments and determine the plan that best meets their goals, but it’s nudging people toward the Income-Based Repayment program since the IBR program will remain open to existing borrowers (as long as they do not take out new loans or consolidate after July 1, 2026). And it will enable SAVE enrollees to resume making qualifying payments and earn credit toward any potential loan forgiveness down the road.
IBR requires borrowers to pay 10% of their discretionary income toward their balance for 20 years, after which any remaining balance is forgiven. (That formula applies to borrowers with loans made after July 1, 2014. For loans taken before that, borrowers pay 15% of income over 25 years.)
There is at least one group that may want to stay put for now: SAVE borrowers nearing loan forgiveness through the Public Service Loan Forgiveness program.
I’m enrolled in PAYE or ICR. What do I need to know?
You don’t need to act immediately, but you’ll eventually need to figure out an alternative — both of these plans will be shuttered by July 1, 2028.
If you have no plans to take out any new loans, you’ll maintain access to at least one existing income-driven plan, IBR. PAYE borrowers (who took out their loans after 2014) are likely to have similar payments on IBR, while ICR enrollees would see their payments drop if they transferred into either IBR program.
You can use the Education Department’s loan simulator at studentaid.gov/loan-simulator to calculate your payments and compare your options. It will eventually incorporate the new plans, including the Repayment Assistance Program, or RAP.
Loan forgiveness is blocked. Now what?
There are four plans that are blocked from canceling student loans at the moment. The blocks for SAVE, PAYE and ICR are likely to be permanent, while the IBR one is only paused.
Last year, two groups of Republican-led states challenged the Biden-era SAVE repayment program in federal court, which froze that program while litigation was active. But a related court ruling this year questioned the Education Department’s authority to grant loan forgiveness in other long-standing income-driven plans, including PAYE and ICR. The Trump administration later halted forgiveness on those plans, too.
Regardless of what happens in the courts, the sprawling reconciliation law will shut them all down by July 1, 2028. They will be replaced by one income-driven repayment program, RAP, along with a standard repayment plan.
IBR, which was created by Congress, is still legally sound, yet loan forgiveness is paused here, too, while the Education Department ensures that certain payment counts are accurate. It’s unclear when IBR forgiveness will resume. The Education Department did not immediately respond to emails seeking comment.
How do I know how many qualifying payments I’ve made toward my income-driven plan?
The payment counters on the Federal Student Aid website — which tracked borrowers’ qualifying payments toward debt relief — were taken down by the Education Department this year while it ensured that certain payment counts were accurate. (The department did not immediately respond to inquiries seeking comment on when the counters would reappear.)
But there is a way to access payment counts after signing in through StudentAid.gov, though the interface isn’t the easiest to read. Still, take screenshots and keep all evidence of any and all payments made.
I’ve made (or am close to making) 25 years of income-driven payments, but loan forgiveness is blocked in my repayment plan. Now what?
You should probably move into IBR, the income-driven plan that was created by Congress and is still able to process forgiveness — though it’s temporarily halted at the moment.
“That is probably your safest bet,” said Abby Shafroth, director of Student Loan Borrower Assistance at the National Consumer Law Center, “in hopes that puts you in the best position of having your loans canceled this year.”
If you’re able to have your loans canceled this year, you can potentially avoid a large tax bill.
The tax break exempting canceled debt from taxes expires this year. Where does this leave borrowers?
Canceled student debt is usually taxed as income, but a temporary tax break made loan discharges from 2021 to 2025 exempt from federal taxation (some states may apply their own levies).
That means people who are near or at the end of their payment plans this year could escape the so-called tax bomb.
But with cancellation halted, will people who have reached the end of their plans make it under the wire?
Student loan experts, including Stanley Tate, a consumer lawyer who specializes in student loans, are cautiously optimistic, particularly for people who have 25 years of payments.
“If someone has already hit the 300-payment mark, my best guess is that their effective forgiveness date will be when they crossed the threshold — not when the forgiveness is processed,” he said.
Scott Buchanan, executive director of the Student Loan Servicing Alliance, also said that borrowers who had accumulated enough qualifying payments toward forgiveness this calendar year would probably not owe taxes, even if their cancellation was processed later.
If that didn’t happen, expect some type of legal action brought on behalf of borrowers.
I’m enrolled in an income-driven plan and have reached my number of qualifying payments, but I’m still getting billed. Should I continue to pay?
Probably — or ask your servicer to put your loans in forbearance. You want to keep your account in good standing, and the Education Department has said that anyone who is erroneously billed will be refunded after they are finished.
I’ve made 20 years of IDR payments (or I’m close), and my remaining debt was supposed to be wiped away. What should I do now?
Some borrowers enrolled in PAYE or SAVE who have made income-driven payments for 20 years (totaling 240 payments) would have been eligible for forgiveness had those plans not been blocked by legal challenges.
Now, regardless of what happens in the courts, the sweeping reconciliation law will kill those plans as of July 1, 2028. So the only option for borrowers under those plans, at least for now, is to move into IBR, the income-driven plan that will remain open to existing borrowers.
But that poses a problem: The version of IBR these borrowers are eligible for — yes, there are two versions — has a 25-year term with higher payments, or 15% of their discretionary income.
These borrowers have reason to be frustrated — the rules have changed on them, and not in their favor. “As you can imagine, these borrowers are very upset,” said Betsy Mayotte, president of the Institute of Student Loan Advisors, which provides free advice for borrowers.
Borrowers may want to stay put and monitor the situation for now. Mayotte said that even though it is “incredibly unlikely,” there is still a tiny chance the courts could allow them to get forgiveness after 20 years. There may also be lawsuits.
If you're enrolled in Public Service Loan Forgiveness.
The PSLF program is open to government and nonprofit employees such as public schoolteachers, librarians and public defenders. After making 120 qualifying payments in an income-driven repayment plan — which requires at least 10 years of service in qualifying jobs — any remaining balance is wiped out.
What should I do if I’m enrolled in SAVE?
If you’re enrolled in SAVE, payments have been halted because of litigation, and you can’t make any payments toward forgiveness.
To receive PSLF credit, borrowers have two options:
You can move into another income-driven repayment plan (like IBR, which will enable you to start making qualifying payments and won’t be shut down) or you can remain in SAVE, at least for now.
For PSLF enrollees who have already spent 10 years (120 months) with a qualifying employer, it probably makes sense to stay in SAVE. They can use what’s known as the “buyback” opportunity, which allows borrowers to submit payments for the months spent in forbearance, making them eligible for forgiveness.
For the moment, SAVE enrollees who have completed buybacks have made catch-up payments based on what they would have had to pay in SAVE or REPAYE, the income-driven plan that SAVE replaced, experts said. Those plans, particularly SAVE, generally have the lowest payments.
But SAVE will be eliminated July 1, 2028, and it’s possible judges could shut it down before then. That’s why staying in the program is most practical for those who have reached the 10-year milestone (or are really close). For everyone else, there are no guarantees their buyback amounts will be based on the lower payments available under SAVE/REPAYE (at least compared with the older version of IBR), experts said.
Is PSLF processing forgiveness?
Yes, but slowly. Remember that debt forgiveness as part of PSLF is not taxable (ever).
Where can I find more help?
There’s an active Facebook group where PSLF borrowers share their experiences and servicer snafus. Knowledgeable group moderators also weigh in with helpful tips.
How is President Donald Trump trying to change PSLF?
The Trump administration recently proposed rules that could restrict who can participate in the program, making it easier to push out employers who engage in activities that it deems have “a substantial illegal purpose.”
Through the Trump administration’s lens, that could include groups providing support to immigrants without legal status, employers who incorporate diversity initiatives or providers of gender-affirming care to children under age 19. Some advocates worry that the administration's policy may be even more far-reaching, targeting sanctuary states and cities, or places that limit their cooperation with federal agencies’ efforts to deport immigrants. That could potentially disqualify government workers of all types who are employed there.
Many public servants have staked their financial futures on the program, and any changes could potentially upend their finances. The proposed rules, which are subject to a 30-day public comment period, are likely to face legal challenges.
Student aid experts say borrowers shouldn’t make any rash decisions based on this news.
They also point out that the rules would not affect any qualifying payments already made, but they would apply to enrolled borrowers going forward. If an employer were deemed ineligible, the borrower would be notified — and payments made after that determination would no longer be credited toward PSLF. Since the rule wouldn’t take effect until July 1, participants would be unaffected until then.
Borrowers should continue to track how the situation unfolds. Some legal experts argue that the Education Department does not have the authority to make these calls, but legal action wouldn’t follow until after the rules are formally issued, which is expected sometime in the fall.
“Our position is that this is already harming people,” said Winston Berkman-Breen, legal director at Student Borrower Protection Center. “Employers are already having employees second-guess their eligibility that could result in retention or recruitment harm to employers. We’re already having employers reach out and ask us for help.”
In its proposal, the Education Department estimated that restricting loan forgiveness would save the government $1.5 billion over 10 years. It also said it believes that fewer than 10 employers would be affected annually.
I’m a parent with PLUS loans. What are my options?
There are a few things happening: Parents who take out new PLUS loans on or after July 1 will have one option: the new standard repayment plan.
But if you have existing PLUS loans (taken before July 1) and affordability is a challenge, you can transfer into the IBR plan, tying monthly payments to your income level. There’s one potentially major deal-breaker: You can’t take out any more federal student loans after July 1, including loans for other children. (If you do, you’ll be kicked out of IBR.)
There is one workaround, said Mayotte of the Institute of Student Loan Advisors, which provides free advice for borrowers. If a student has two parents, the parent who did not take out the old loans can take out new ones on or after July 1, “so at least existing loans will still have access to IBR,” she added.
What do parent borrowers need to do to get into IBR?
Like most things with student loans, there are multiple steps and it feels needlessly complicated. There’s also a deadline, so you’ll need to act relatively soon.
PLUS loans must be consolidated into a Direct loan, and the consolidation loan must be disbursed no later than June 30. If you miss that deadline, you’ll be locked out of IBR for good.
There’s a second step: You’ll need to enroll in the ICR plan, the most expensive income-driven plan, and make one payment, according to the Education Department. After that, you’ll be able to enroll in IBR.
(Before the giant reconciliation law, parents generally had access only to ICR, generally 20% of discretionary income with a term of 25 years. It also required loans to be consolidated.)
The Education Department said it would share more information about ICR enrollment deadlines at a later date.
(For more details, see the Federal Student Aid website.)
I’m already enrolled in Income-Contingent Repayment. What should I do?
ICR participants should be able to transfer into IBR after July 1.
My loans are in default.
What are the consequences?
The Education Department began forced collections on loans in default May 5.
There are serious repercussions if the loans remain in default, which makes the balance immediately due. The government can take your entire tax refund (as long as it doesn’t exceed your debt amount) and up to 15% of monthly Social Security retirement and disability benefits and your paycheck. (The Treasury Offset program has a more comprehensive list of what’s eligible and what’s off limits.)
Wage garnishment is expected to begin this summer, though seizures from monthly benefits, including Social Security, have been put on hold.
Besides collections, the default will seriously damage your credit standing.
Where do I begin?
You still have options. If your loan is in default, or 270 days or more overdue, your first step should be to get in touch with the Federal Student Aid Office’s Default Resolution Group, which can help get your loan sorted. (You can check the status of your loans by logging into your account at StudentAid.gov.)
How can I get out of default?
You can pay the loan in full, but that’s not possible for most people.
More feasible alternatives include consolidating the defaulted loans or rehabilitating the loan, which requires making nine out of 10 consecutive “reasonable” payments, determined by loan holders using a formula.
It’s usually easiest to consolidate the defaulted loan (as long as you have more than one loan) into one federal Direct Consolidation Loan, which pays off the old ones.
But there are drawbacks, especially for borrowers in income-driven repayment plans (which forgive any remaining debt after a period, generally 20 years, of payments tied to your income and household size). After consolidation, you may lose any credit earned toward loan forgiveness.
What else should I know?
Consolidating federal loans may be risky right now.
If you have already made qualifying payments in an income-driven repayment plan and want to continue on that path toward debt cancellation, consolidating your loans now could erase that progress.
The reasons trace back to the SAVE litigation: The Biden administration issued rules enabling borrowers to consolidate without losing credits toward income-driven repayment. But the rules were part of the SAVE regulatory package, which is caught up in litigation.
“Borrowers should be cautious about consolidating, and consider that they may lose all of their past IDR qualifying payments by consolidating until something changes in regulation, in the litigation, or the department’s interpretation of the court order,” said Shafroth of the National Consumer Law Center.
Is there any way to expedite my enrollment in an income-driven plan?
At the moment, it’s taking anywhere from a few days to a month for new applications to be processed, said Buchanan of the Student Loan Servicing Alliance. Applications tend to move more quickly if you allow the Education Department to gain access to your income data directly from the IRS.
Processing may take longer if your situation is more complicated — maybe your income situation has significantly changed, and you need to submit alternative documentation, for example.
Your loan will be put in an administrative forbearance if needed, which means your payment will be frozen until your application is processed (interest will continue to accrue).
How can I get more help?
- The Institute of Student Loan Advisors provides free advice for borrowers.
- The Student Debt Crisis Center has a resource center and holds workshops. The Student Loan Borrower Assistance project at the National Consumer Law Center also offers tips.
- Some states may offer services to assist borrowers.
- If you’re having trouble getting the help you need with your servicer, some states have student loan ombudsman offices that can help.
- The Federal Student Aid office has a list of frequently asked questions on its website.
- Experts like Travis Hornsby and Tate provide helpful resources and calculators on their websites and updates on their social media feeds.
