Updated December 23, 2025 at 2:31 PM EST
Throughout 2025, borrowers have navigated a whirlwind of changes within the federal student loan landscape. As the Trump administration and Congress work on significant reforms, borrowers are looking for clarity on loan terms and repayment expectations.
Changes to the SAVE Plan
The U.S. Department of Education proposed a settlement in early December to terminate the Biden-era student loan repayment program, known as the SAVE Plan. This program, praised for its affordability and flexibility, faced legal challenges from Republican state attorneys general who claimed the administration overstepped its authority.
According to Persis Yu of Protect Borrowers, the SAVE Plan was the “most affordable, generous and flexible plan for millions of student loan borrowers.” However, ongoing legal disputes left participants uncertain, halting required payments while interest began accruing in August.
The proposed agreement, which awaits court approval, aims to conclude the legal battle by ending SAVE. Under Secretary of Education Nicholas Kent stated, “The law is clear: if you take out a loan, you must pay it back.” The agreement includes transitioning the 7 million borrowers in SAVE to other repayment plans, though some of these options are also uncertain.
Betsy Mayotte, founder of the Institute of Student Loan Advisors, expressed concern over the plan’s termination, noting that borrowers must now adjust to potentially higher payments under different plans.
Public Service Loan Forgiveness Concerns
Liz Kilty, an oncology nurse from Portland, Oregon, has been affected by the SAVE Plan’s legal issues. Kilty, who joined SAVE to manage her payments while working toward Public Service Loan Forgiveness (PSLF), has faced delays in her forgiveness progress due to payment freezes.
PSLF, established in 2007, allows public service workers to have their loan balances forgiven after a decade of service. Kilty, with $36,000 remaining in debt and 15 payments left, has applied for the PSLF Buyback to expedite her loan forgiveness.
Although the Trump administration cannot eliminate PSLF, it plans to alter its rules. Starting July 1, 2026, the Education Department will deny forgiveness to employees of organizations with activities deemed to have a “substantial illegal purpose,” a term defined by the education secretary. This move has prompted lawsuits from several cities, arguing it could unfairly impact public workers.
Upcoming Repayment Plan Adjustments
In 2026, significant changes to repayment plans are anticipated under the One Big Beautiful Bill Act (OBBBA), which phases out Income-Contingent Repayment (ICR) and Pay As You Earn (PAYE) by mid-2028. These plans, which calculate payments based on income, will be replaced by new options.
Borrowers can still enroll in existing plans temporarily, with Income-Based Repayment (IBR) remaining available. For those seeking a comparison of monthly payments, the Education Department offers a Loan Simulator.
Beginning July 1, 2026, Congress will introduce two new plans:
1. The Standard Plan: This plan offers repayment durations between 10 and 25 years, depending on the loan amount. Payments will be structured similar to mortgage payments. Details of the plan indicate longer repayment periods for larger debts.
2. The Repayment Assistance Plan (RAP): Designed for borrowers concerned about meeting the standard plan’s payments, RAP bases payments on adjusted gross income and waives remaining interest after monthly payments. Borrowers whose payments are under $50 will benefit from government contributions toward the principal.
Unlike other plans offering forgiveness after 20 or 25 years, RAP extends forgiveness to 30 years. Preston Cooper from the American Enterprise Institute suggests borrowers might repay their loans before reaching this threshold.
New Borrowing Limits
Effective July 1, 2026, new borrowing caps will impact graduate students, while undergraduates remain unaffected. The revocation of the grad PLUS program will limit borrowing to $20,500 annually. Professional degree students face a $50,000 yearly cap, and parent PLUS loans will max out at $65,000 per child.
This policy aims to control rising education costs, though Persis Yu notes it may create funding gaps, pushing students toward private loans. Betsy Mayotte predicts some schools may discontinue certain programs due to these restrictions.
Rising Default Concerns
Amid these changes, data indicates a growing number of borrowers are struggling. Preston Cooper’s analysis reveals 5.5 million borrowers in default and millions more facing delinquency. This crisis affects over a quarter of federal student loan borrowers, raising alarms across political lines.
Persis Yu warns of a looming “default cliff,” while Mayotte predicts historic default rates. The Education Department plans to resume wage garnishment for defaulted borrowers in early 2026. As 2026 approaches, questions remain about whether recent reforms will stabilize the situation or exacerbate the default crisis.
Edited by: Nicole Cohen
Visual design and development by: LA Johnson
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