In a significant move, Congress has passed President Donald Trump's Big Beautiful Bill, a comprehensive spending package that introduces sweeping changes to the landscape of student loans. This new legislation aims to reshape how student-loan borrowers manage their debts, making it potentially more challenging for many to secure affordable monthly payments. With the bill's enactment, existing income-driven repayment plans will be eliminated and replaced with two less favorable options, while also imposing new restrictions on loans available to parents and graduate students.
The new legislation significantly alters the student-loan repayment framework, impacting millions of borrowers. It abolishes current income-driven repayment plans, introducing two new repayment options that are less generous. The first option, known as the Repayment Assistance Plan, will set monthly payments between 1% to 10% of a borrower's income, with a minimum payment of $10. Notably, unpaid interest will be waived under this plan, and any remaining balance will be forgiven after 30 years.
This new plan is a departure from former President Joe Biden's SAVE plan, which had offered more favorable terms, allowing borrowers with original balances of $12,000 or less to achieve loan forgiveness after just 10 years of payments. The SAVE plan, which reduced payments on undergraduate loans from 10% to 5% of a borrower's discretionary income, is now blocked in court pending a legal decision. As a result, the 8 million borrowers currently enrolled in the SAVE plan will have until between July 2026 and July 2028 to switch to the newly established repayment plans.
The second repayment option introduced by the bill is a standard repayment plan that features fixed payments for a period ranging from 10 to 25 years, based on the borrower's original balance. Unlike existing standard plans with fixed repayment periods, this new plan's duration will vary according to the amount borrowed, further complicating repayment options for many.
Beyond the limited repayment plans, the new legislation also restricts borrowers' ability to place their loans on deferment in the event of financial hardship or unemployment. As a result, standard forbearance will be the only available option for delaying payments, which may exacerbate financial difficulties for borrowers facing economic challenges.
The bill also eliminates the graduate PLUS program, which previously allowed graduate and professional students to borrow up to the full cost of their education. However, it retains the parent PLUS program, which enables parents to take out loans for their children's education but imposes a $65,000 lifetime cap on borrowing.
In addition to changes in repayment structures, the bill aims to enhance college accountability by ensuring that programs whose graduates do not earn more than the median income of high school graduates in their state will lose eligibility for federal student loans. Furthermore, the legislation extends the Pell Grant program to shorter-term educational programs, a move previously advocated by Education Secretary Linda McMahon.
The passage of this bill has sparked significant debate. Linda McMahon praised the bill on social media, claiming it simplifies the complex student loan repayment system and aims to curb rising tuition costs. However, borrower advocates and Democratic lawmakers are raising alarms. Senator Elizabeth Warren stated that the bill will lead to increased payments for student-loan borrowers, while Natalia Abrams, president of the Student Debt Crisis Center, argued that the legislation abandons millions of borrowers, limiting their repayment options and deepening their financial insecurities.
As this bill takes effect, the implications for federal student-loan borrowers will be substantial, reshaping the landscape of student debt in America. Understanding these changes will be essential for borrowers navigating this new era of student loan repayment.
