As we approach the end of 2025, borrowers have found themselves navigating a tumultuous landscape in the federal student loan system. The ongoing overhaul initiated by the Trump administration and Congress has brought significant changes that affect everything from the amount Americans can borrow to the terms under which they must repay their loans. Here’s a comprehensive overview of what borrowers need to know as we transition into the new year.
In early December, the U.S. Department of Education announced a proposed settlement agreement aimed at ending the widely discussed but contentious SAVE Plan. Officially known as the Saving on a Valuable Education Plan, it was acclaimed as the most affordable, generous, and flexible repayment option available to millions of student loan borrowers. According to Persis Yu from the advocacy group Protect Borrowers, the plan offered expedited loan forgiveness and monthly payments as low as $0 for low-income individuals.
Despite its benefits, the SAVE Plan faced legal challenges from Republican state attorneys general who contended that the Biden administration had overstepped its authority. This resulted in months of uncertainty for borrowers, who were not required to make payments during the litigation, although interest began accruing in August. The proposed agreement, pending court approval, would terminate the SAVE Plan and resolve the ongoing legal disputes.
Under Secretary of Education Nicholas Kent emphasized that the obligation to repay loans is clear and stated that American taxpayers should no longer bear the burden of what he termed "illegal and irresponsible student loan policies." The agreement also includes provisions to transition approximately 7 million borrowers still enrolled in SAVE to other repayment plans, although these alternatives may also be subject to changes.
For borrowers like Liz Kilty, an oncology nurse in Portland, Oregon, the implications of the SAVE Plan's termination are particularly concerning. Kilty has been working towards Public Service Loan Forgiveness (PSLF) since the program's inception in 2007, which offers loan forgiveness after 10 years of service in public sectors such as nursing and teaching.
Kilty expressed frustration over the complications introduced by SAVE's legal issues, which have stalled her progress toward forgiveness. Having $36,000 in student debt remaining, she had hoped to complete her remaining 15 payments this year. With the SAVE Plan's changes, Kilty applied for the PSLF Buyback option to consolidate her payments into a single lump sum to qualify for forgiveness.
While PSLF remains a viable option for Kilty, changes initiated by the Trump administration could jeopardize the program’s integrity. Starting July 1, 2026, the Department of Education plans to deny loan forgiveness to employees of government or nonprofit organizations involved in activities deemed to have a substantial illegal purpose. This ambiguous criterion could exclude many public service workers from receiving much-needed loan forgiveness.
The landscape of repayment plans is also shifting dramatically. According to the One Big Beautiful Bill Act (OBBBA), Republicans have proposed phasing out two popular repayment options: the Income-Contingent Repayment (ICR) and Pay As You Earn (PAYE) plans by mid-2028. Although current borrowers can still enroll in these plans for now, the future remains uncertain.
New repayment structures will be introduced starting July 1, 2026, replacing existing options with two main plans:
The new standard plan offers borrowers a repayment window of 10 to 25 years based on their debt size. Monthly payments will be divided evenly, similar to a mortgage. Borrowers with larger debts may qualify for longer repayment periods.
For those concerned about making standard plan payments, the RAP will offer a more income-sensitive option. Payments will primarily hinge on borrowers’ total adjusted gross income (AGI), with interest waived after monthly payments are made. This plan aims to prevent loan balances from increasing while borrowers make consistent payments. Notably, for payments under $50, the government will match whatever the borrower pays toward the principal, although forgiveness timelines will extend to 30 years.
In addition to changes in repayment plans, significant adjustments to borrowing limits for graduate students will take effect. Starting July 1, 2026, the existing Grad PLUS program, which permits students to borrow up to the total cost of their degree, will be discontinued. This will cap graduate borrowing at $20,500 annually.
These new limits are expected to complicate the financial landscape for lower- and middle-income borrowers pursuing graduate education, potentially leading to increased reliance on private loans. For professional degrees, such as medicine or law, borrowing will be restricted to $50,000 per year. Furthermore, parents using Parent PLUS loans will now face new limits of $65,000 per child.
Amid these sweeping changes, alarming statistics reveal that millions of borrowers are struggling to stay current on their payments. Recent analyses indicate that approximately 5.5 million borrowers are in default, with an additional 3.7 million more than 270 days late on their payments. This means over 12 million borrowers are either delinquent or in default, raising concerns of a potential crisis.
Persis Yu warns that the nation is approaching a "default cliff," and experts like Betsy Mayotte predict that the country may face historic default rates in the near future. With such a significant percentage of borrowers facing challenges, it’s crucial for individuals to stay informed and proactive about their student loan repayment strategies.