Student Loan Repayments Are About to Look Very Different

A significant transformation is on the horizon for Americans relying on federal student loans. With the recent passage of a new domestic policy bill, the structure and support systems around student loan repayment will undergo sweeping changes — changes that may make college access more challenging and drastically revise how borrowers manage repayment for their often-substantial debts.

These reforms, set to begin next summer, will introduce two brand-new repayment plans for borrowers taking out loans from that point onward. At the same time, many of the current repayment options — including some of the most borrower-friendly, like the Biden administration’s SAVE plan — will be phased out. Around eight million borrowers currently enrolled in SAVE will soon need to reassess their options and select a new plan that best suits their financial situations.

This shift comes at a critical juncture. The student loan system has been in disarray for years, and repayment behaviors reflect that instability. According to student loan expert Mark Kantrowitz, fewer than half — approximately 44% — of the 35 million individuals expected to be repaying loans are actually doing so. In fact, data from TransUnion reveals that close to six million borrowers were reported as delinquent by the end of April, with many experiencing sharp declines in their credit scores as a result.

Although the new repayment programs may not singlehandedly solve these issues, they aim to bring clarity and predictability to borrowers who have spent over a year navigating uncertainty.

A Turbulent Landscape

The past six years have been a rollercoaster for student loan borrowers. During the COVID-19 pandemic, a 42-month freeze on payments was implemented. Then, in August 2023, the Biden administration rolled out the SAVE plan to provide a more income-sensitive repayment option. But legal pushback — primarily from Republican-led states — quickly brought the plan to a halt, freezing payments once again and casting doubt on the future of income-driven repayment (IDR) programs. Earlier this year, a related court decision challenged the legality of multiple existing IDR programs, leading to a temporary pause on all new applications.

Now, the federal government is moving forward with a broad restructuring of the repayment landscape, despite internal challenges. The Department of Education has seen its workforce significantly reduced due to budget cuts initiated during the Trump administration, adding more strain as officials prepare to implement these complex changes.

The New Repayment Plans: What to Expect

Beginning July 1 of next year, new federal student loan borrowers will have only two repayment plans available:

1. A Revised Standard Repayment Plan:
This plan involves fixed monthly payments over a period that varies based on the total loan amount. For instance, someone borrowing under $25,000 will typically repay the loan over 10 years, while those borrowing over $100,000 could have terms extending to 25 years.

2. The Repayment Assistance Program (RAP):
RAP will serve as the new income-based option, though with several structural changes compared to traditional IDR programs. Monthly payments will range from 1% to 10% of a borrower’s adjusted gross income and continue for up to 30 years. After that, any remaining balance will be forgiven — a term notably longer than existing IDR plans, which usually offer forgiveness after 20 to 25 years.

RAP has some borrower-friendly elements. If a borrower’s monthly payment doesn’t fully cover the accrued interest, that interest is waived. Additionally, there’s a guarantee that the principal balance will be reduced by at least $50 per month. For example, if a borrower’s payment reduces their loan principal by only $20 in a given month, the government will contribute an extra $30 to meet the $50 target.

However, the program isn’t without flaws. RAP does not account for inflation. Consequently, borrowers whose incomes merely keep pace with rising costs may find themselves pushed into higher repayment brackets over time, increasing their total loan burden.

Borrowers will see varied results under RAP. Middle-income individuals may benefit, but people earning either less than $30,000 or more than $80,000 annually may face higher payments compared to current plans, based on a study from the Urban Institute. A key concern for advocates is that RAP mandates a minimum $10 monthly payment, even for those with no income — a requirement that could lead the most financially distressed borrowers into default.

Additionally, RAP may present a “marriage penalty” worse than those seen in existing programs. For some married couples, combined incomes may push them into a higher payment tier, potentially doubling their monthly payments. While spouses can file separate federal tax returns to avoid this issue, doing so could disqualify them from certain tax benefits.

Options for Current Borrowers

For those already repaying their loans under the standard plan, no immediate changes are required — provided they don’t take out additional loans. Existing income-driven repayment plans like SAVE, Pay As You Earn (PAYE), and Income-Contingent Repayment (ICR) will be discontinued by June 30, 2028. Borrowers enrolled in these programs will have the option to switch to RAP or continue with the one remaining IDR plan — Income-Based Repayment (IBR) — which will remain available.

However, there’s an important catch: if a borrower takes out a new federal loan after July 1, 2025, they will be restricted to the new RAP and standard repayment plans only. This means those currently using IDR plans must carefully evaluate whether RAP or IBR offers the better outcome. Under IBR, those with loans issued after July 1, 2014, pay 10% of discretionary income for 20 years. For older loans, the terms are 15% over 25 years.

RAP tends to offer lower monthly payments for low- to moderate-income borrowers, said Kantrowitz. But because it extends repayment over 30 years, many may end up paying more in the long run unless they qualify for programs like Public Service Loan Forgiveness (PSLF), which forgives loans after 120 qualifying payments made while working for a nonprofit or government entity.

What About Parent PLUS Loans?

Parents who take out new PLUS loans on or after July 1, 2026, will be limited to the standard repayment plan. They will not be eligible for RAP.

Historically, parents have had fewer repayment options, with most relying on the Income-Contingent Repayment plan — a costly choice that requires 20% of discretionary income and a 25-year repayment term. The good news is that parents already using ICR will soon be eligible to switch to the more affordable IBR plan, potentially easing their financial burden.

According to student loan attorney Stanley Tate, this change is a step forward, offering parents a less expensive repayment path than previously available.

Still, some uncertainty remains about how easily parents can access IBR without first enrolling in ICR. Further clarification is expected from the Education Department in the coming months.

Forbearance and Hardship Options

Borrowers experiencing financial hardship — such as job loss — will still be able to pause payments, but with fewer options. Starting in July 2027, new loans will no longer be eligible for economic hardship or unemployment deferments. Instead, borrowers will be able to use forbearance for up to nine months within a two-year period.

The intent is to encourage borrowers in difficult financial situations to consider long-term solutions, such as RAP, rather than rely on temporary deferrals.

What Comes Next?

The Department of Education has stated that it is actively working on implementation plans for these reforms and will release updates and guidance as more details are finalized. Borrowers should stay informed and use tools like the Department’s loan simulator to evaluate which plans offer the most manageable and cost-effective paths forward.

As this sweeping overhaul unfolds, one thing is certain: navigating the federal student loan system is about to become significantly more complicated, and borrowers will need to remain proactive in understanding their rights, responsibilities, and options in the years ahead.