Millions of federal student loan borrowers will soon face significant changes to how they repay their student debt.
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Beginning July 1, new federal repayment rules will reduce the number of repayment and loan forgiveness options available to borrowers. The changes are part of legislation approved by Congress last year and will affect both current borrowers and anyone taking out new federal student loans.
Consumer advocates say borrowers should review their repayment options as soon as possible to avoid being automatically placed into a more expensive repayment plan.
The biggest change impacts the roughly 7 million borrowers currently enrolled in the Saving on a Valuable Education, or SAVE, repayment plan.
The U.S. Department of Education is expected to notify borrowers that they have 90 days to select a new repayment option. Those who fail to make a choice by the deadline could be automatically enrolled in a standard repayment plan, which may result in significantly higher monthly payments.
“It feels like whiplash when something new is announced,” Savi’s Chief Borrower Advocate Lindsay Clark said.
Lindsay Clark, chief borrower advocate for Savi, a company that helps employers provide student loan repayment assistance, said many borrowers should carefully compare their options before the deadline.
“If they don’t take action before basically Oct. 1, they’re going to be auto enrolled into a standard plan, which comparatively is probably going to be much higher,” Clark said.
Borrowers will continue to have access to the existing Income-Based Repayment, or IBR, plan, which caps monthly payments based on a percentage of discretionary income and offers loan forgiveness after a qualifying repayment period.
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Starting July 1, two new repayment options will also become available:
- Repayment Assistance Plan (RAP): Monthly payments are based on a borrower’s adjusted gross income rather than discretionary income.
- Tiered Standard Plan: Monthly payments increase over time according to a fixed repayment schedule.
Clark said borrowers whose incomes have increased since they last certified their earnings could see higher monthly payments once they update their financial information.
“Many people whose income is higher than it was in 2019 are going to see that reflected in their monthly payment amount,” Clark said.
The law also changes repayment options for anyone taking out new federal student loans beginning July 1.
Borrowers who receive new federal student loans, even if they already have existing federal loans, will generally be limited to just two repayment options across all of their loans: the Repayment Assistance Plan or the Tiered Standard Plan.
Parents who take out new Parent PLUS loans will have only one repayment option available: the Tiered Standard Plan.
Experts recommend borrowers take several steps before the new rules take effect:
- Contact your federal student loan servicer to discuss your repayment options.
- Verify that your mailing address, email address and phone number are up to date.
- Use an online student loan repayment calculator to estimate monthly payments under each available plan.
- Speak with your loan servicer if you’re unsure which repayment option best fits your financial situation.
Borrowers applying for an income-based repayment plan will need to provide proof of income. Most people use their federal tax return, but borrowers whose income has recently changed may instead use a pay stub from the past 90 days.
Experts say using more recent income documentation may benefit borrowers whose earnings fluctuate throughout the year.
Borrowers should also be aware that the Income-Contingent Repayment plan and the Pay As You Earn, or PAYE, repayment plan are scheduled to be phased out in 2028.