Major changes to the US federal student loan forgiveness program are expected starting July 1st.
The sweeping overhaul potentially forces millions of borrowers to pay for decades longer than originally expected.
The fundamental shift includes Income Driven Repayment (IDR) plans. The Biden-era SAVE plan officially ended on March 10.
The termination is followed by a federal court settlement, with ICR and PAYE plans expected to phase out in 2028.
For people borrowing or consolidating student loans from July 1 onward, the only type of IDR plan left will be the new Repayment Assistance Plan (RAP).
Instead of forgiving all loans after 20 or 25 years, as today’s plans do, the RAP requires a minimum repayment period of 30 years.
For parents PLUS students, changes are much more drastic. They will not be able to benefit from the new Repayment Assistance Plan (RAP) at all under the proposed plan.
To maintain any chance of accessing income-based repayment and/or PSLF, it is necessary to consolidate and elect ICR by July 1st.
Public Service Loan Forgiveness (PSLF) is also under serious warning. Under the new Education Department rules, Appropriations Secretary Linda McMahon is empowered to disqualify employers with a “substantially unlawful purpose.”
With this, thousands of nonprofit and government employees become ineligible to earn additional forgiveness credit. Several lawsuits are seeking to block the rule before it takes effect.
On the other hand, the “PSLF buyback” solution has become significantly more expensive under the current administration.
The Trump administration is set to end the use of the cheap payment calculation used by SAVE for any buyback offers during periods of forbearance starting in July 2024.
This would force the borrower to pay higher costs to obtain credit retroactively.
With millions of borrowers to switch from SAVE and an existing backlog of over 500,000 loan payments awaiting approval, delays could run for months.
Borrowers are therefore encouraged to use the Education Department’s loan payment calculator as soon as possible.
