Major changes are expected to the US federal student loan forgiveness program starting July 1.
This sweeping overhaul could force millions of borrowers to pay decades more than originally planned.
The fundamental change includes income-driven repayment (IDR) plans. The Biden-era SAVE plan officially ended on March 10.
The termination is followed by a settlement in federal court, with the ICR and PAYE plans to be phased out by 2028.
For people borrowing or consolidating student loans starting July 1, the only type of IDR plan remaining will be the new Repayment Assistance Plan (RAP).
Instead of canceling all loans after 20 or 25 years as current plans do, the HBP requires a minimum repayment period of 30 years.
For Parent PLUS students, the changes are much more drastic. They will not be able to benefit at all from the new Reimbursement Assistance Plan (RAP) under the proposed plan.
To maintain any chance of accessing income-based reimbursement and/or PSLF, consolidation and the ICR option by July 1 are necessary.
The Public Service Loan Forgiveness Program (PSLF) also faces serious caveats. Under new Department for Education regulations, Grants Secretary Linda McMahon is authorized to disqualify employers for a “significant unlawful purpose”.
With this, thousands of government officials and nonprofits are no longer eligible for additional forgiveness credits. Several lawsuits aim to block the rule before it takes effect.
On the other hand, the “PSLF buyout” solution has become significantly more expensive under the current administration.
The Trump administration should stop using the low-cost payment calculation used by SAVE for any buyout offers during forbearance periods beginning in July 2024.
This would require the borrower to pay higher fees to obtain retroactive credit.
With millions of borrowers having to drop out of the SAVE system and a backlog of more than 500,000 loan payments awaiting approval, delays can take several months.
Borrowers are therefore encouraged to use the Department of Education’s loan repayment calculator as soon as possible.
