Major changes to the US federal student loan forgiveness program are expected starting July 1.
The sweeping overhaul potentially forces millions of borrowers to pay more for decades than initially planned.
The fundamental change 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 the ICR and PAYE plans expected to be phased out by 2028.
For people borrowing or consolidating student loans from July 1 onward, the only type of IDR plan remaining will be the new Payment Assistance Plan (RAP).
Instead of forgiving all loans after 20 or 25 years as current plans do, the RAP calls for a minimum repayment period of 30 years.
For Parent PLUS students, the changes are much more drastic. They will not be able to take advantage of the new Payment Assistance Plan (RAP) at all under the proposed plan.
To retain any eligibility for income-based repayment and/or PSLF, you must consolidate and opt-in to ICR by July 1.
Public Service Loan Forgiveness (PSLF) is also under serious warning. Under the new Department of Education regulations, Grants Secretary Linda McMahon is authorized to disqualify employers for a “substantial unlawful purpose.”
With this, thousands of government and nonprofit workers are no longer eligible for more forgiveness credits. Several lawsuits seek 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 will stop using the economic payout calculation used by SAVE for any buyback offers during forbearance periods beginning in July 2024.
This would force the borrower to pay higher costs to obtain retroactive credit.
With millions of borrowers forced to leave SAVE and a backlog of more than 500,000 loan payments pending approval, delays can last several months.
Therefore, borrowers are encouraged to use the Department of Education’s loan repayment calculator as soon as possible.
