STUDENT borrowers will have just two repayment options as a new comprehensive law goes into effect this month, part of the federal government’s budget reconciliation efforts.
The change comes as the government is cracking down on unpaid loans, putting millions of Americans at risk of having their paychecks slashed.
Student borrowers are seeing limited repayment plans and are at risk of having their paychecks slashed under new legislation[/caption]
President Donald Trump’s $3.3 trillion budget reconciliation bill, dubbed the One Big Beautiful Bill Act, was officially signed into law on July 4.
One of the key provisions of the new law playbook is that Americans with outstanding federal student loans now just have two options for repayment plans.
Popular plans such as SAVE, Pay As You Earn, and Income-Contingent Repayment are being dropped in favor of the new standard repayment plan or Repayment Assistance Plan.
The former option will have a term length – ranging from 10 to 25 years – based on the amount of money borrowed.
On the other hand, the Repayment Assistance Plan will require 30 years of payments before a student is eligible for loan forgiveness.
New borrowers will see the changes begin on July 1, 2026, while borrowers who still owe money as of July 1, 2028, will be subject to the changes then.
While the government has argued that the federal student loan program adjustments will save billions of dollars and streamline the borrowing and repayment process, critics warn that they will spike the monthly payments for most borrowers.
“This reconciliation bill will be catastrophic for millions of Americans by restricting access to higher education and exacerbating the student debt crisis for both federal and private student loans,” said Student Debt Crisis Center president Natalia Abrams, per News Nation Now.
“While it is difficult to imagine how much worse the student debt crisis can become, this reconciliation bill does exactly that.”
New legislation’s impact on student loans
In addition to reducing the types of repayment plans, Trump’s One Big Beautiful Bill will impact the amount of money that students can borrow from the federal government.
It will get rid of the Graduate PLUS Program, a repayment option that allows graduate or professional students to borrow up to the full cost of attendance.
Under the new legislation, graduate students will face a cutoff of $100,000 for lifetime loans, while medical and law students will be capped at $200,000.
The cap for Parent PLUS loans will also be set at a $65,000 per dependent student and will not be eligible for repayment programs.
The new legislation will also affect how student loan deferment works, eliminating deferment options for those struggling due to unemployment or economic hardship.
Borrowers will, however, be permitted to rehabilitate defaulted loans twice instead of just once.
Other changes under the bill include Pell Grant eligibility, including the establishment of Workforce Pell Grants for individuals in career or technical-based education programs.
PAYCHECK PAINS
As Trump’s One Big Beautiful Bill reduces the repayment plans for student borrowers, another of the president’s moves will impact Americans who have not paid off their student loans.
The government is owed a shocking $1.69 trillion in student loan repayments, a number it is looking to drop significantly.
The president recently lifted a five-year pause on involuntary student loan collection that was imposed during the pandemic, permitting the government to resume collecting unpaid loans.
In May, nearly 200,000 defaulted student loan borrowers began receiving 30-day notices alerting them that their federal benefits could be withheld as early as June, per a press release from the Department of Education.
Delinquent borrowers are individuals who fail to make timely payments on their financial obligations, while those who continue to be delinquent risk their student loan going into default, meaning they missed their payments for a set amount of time.
Student Loan Statistics
- Student loan debt in the US is over $1.777 trillion
- Federal student loan debt accounts for 92.2%
- Average federal student loan debt amount per person is $38,375
- Students at a public university borrow $31,960 on average to attain a bachelor’s degree
Credit: Education Data Initiative
Approximately 33% of the six million newly delinquent borrowers were expected to enter default this month, per estimates from TransUnion.
As a result, around two million students are at risk of having 15% of their paycheck withheld.
Loans classified as default are subject to a number of government-imposed penalties, such as withheld tax refunds or reduced Social Security and disability payments.
Default borrowers may even see some of their monthly paychecks garnished, as the government can withhold up to 15% of an individual’s paycheck.
“We continue to see more and more federal student loan borrowers being reported as the 90+ days delinquent, making a larger number of consumers vulnerable to entering default and the start of collections activities,” said Michele Raneri, vice president and head of US research and consulting at TransUnion, in a statement.
See how a money expert paid off $173,000 in student loans in less than two years using her seven tips.
Plus, check out the advice that a financial guru offered a “late bloomer” retiree with $200,000 in student loans.
