NEW YORK, UNITED STATES – APRIL 24: Speaker of the US House of Representatives, Mike Johnson (R) and … More
The Trump administration, the courts, and Republican lawmakers in Congress are poised to make the most significant changes to federal student loan repayment plans in a generation. If enacted, these reforms could cut off access to affordable payments for millions of borrowers, eliminate student loan forgiveness, and trap people in a lifetime of debt, warn advocates.
For more than 30 years, student loan borrowers have been able to access income-driven repayment plans, a type of program first authorized by Congress in the mid 1990s to allow borrowers to repay their loans using a formula based on their income. Borrowers were promised that if they remained in good standing on their student loans and made their required payments, any remaining balance would eventually be forgiven, typically after 25 years in repayment. These assurances were provided to borrowers through Department of Education regulations, loan contract language, and public guidance made by the government, its contracted loan servicers, and college financial aid offices. IDR programs have only grown in popularity over time as the costs of higher education have soared, leading to the current IDR system featuring four distinct repayment plans — ICR, IBR, PAYE, and SAVE (which replaced the older REPAYE plan). Republican lawmakers have argued that the system is overly complicated and too costly for taxpayers.
The current assault on federal student loan repayment plans is occurring on three fronts. An ongoing legal challenge threatens to eliminate the SAVE plan altogether, and a federal appeals court has also questioned whether there should even be student loan forgiveness at the end of the repayment term for the ICR and PAYE plans. The Trump administration has also initiated a rulemaking process that is targeting those same two plans, potentially with an eye toward repeal or major changes to the repayment formula. And Congress is considering significant reforms to income-driven repayment through legislation; if enacted, the proposals could increase monthly payments and eliminate any real possibility of student loan forgiveness for many borrowers.
Affordable Payments And Student Loan Forgiveness Likely Gone For The SAVE Plan
Affordable payments and student loan forgiveness as features of the SAVE plan have been blocked by a federal appeals court since last August. But it appears increasingly unlikely that the benefits of the plan once touted by the Biden administration will ever return.
A coalition of Republican-led states had filed a legal challenge last year, arguing that the Biden administration exceeded its authority in crafting a repayment plan with such generous terms, which include lower payments than other income-driven plans, faster loan forgiveness in certain cases, and an interest subsidy that stops loan balances from ballooning. In February, the same federal appeals court issued a new ruling doubling down on its original order granting an injunction to block the SAVE plan, and expanded it to encompass the entire SAVE plan regulatory regime.
“The Secretary has gone well beyond this authority by designing a plan where loans are largely forgiven rather than repaid,” wrote the 8th Circuit Court of Appeals, strongly suggesting that the SAVE plan would ultimately get struck down.
The 8th Circuit remanded the case to the district court, which is expected to issue a final ruling sometime later this year. Assuming that the SAVE plan is as good as dead, as most observers believe, borrowers who had been enrolled in SAVE and are now in a forbearance will likely need to eventually choose a different repayment plan, which may be far more expensive.
Department Of Education Could Repeal Student Loan Forgiveness And Lower Payments For ICR And PAYE Plans
Meanwhile, last week the Trump administration took a key initial step to remake two other income-driven repayment plans: ICR and PAYE. The Department of Education announced the commencement of negotiated rulemaking, a process by which department officials can change or repeal regulations governing certain federal student loan programs. The announcement specifically indicates that negotiated rulemaking will focus on ICR and PAYE, as well as Public Service Loan Forgiveness, or PSLF.
While the department’s announcement does not provide any specifics about the changes officials are contemplating, it seems plausible that the Trump administration will use the 8th Circuit’s recent decision, which called into question student loan forgiveness under ICR and PAYE, as a basis for dramatically reshaping these programs.
The statute that authorized the creation of ICR, PAYE, and ultimately SAVE likely “does not authorize loan forgiveness at the end of the payment period,” wrote the 8th Circuit, contradicting more than three decades of promises made to student loan borrowers through Department of Education regulations, loan promissory notes, and public guidance. The court reasoned that, “The statute’s text and structure require ICR plans to be designed for a borrower to pay his or her loan balance in full through payments that can fluctuate based on income during the payment term” — despite the fact that no such affirmative “pay-in-full” requirement is explicitly anywhere in the statutory text, and that paying a loan balance in full may simply not be possible for some borrowers using the repayment parameters that Congress included in the statute. The 8th Circuit conceded that the IBR plan, which is not being challenged and was created separately by Congress, does properly offer student loan forgiveness at the end of the 20- or 25-year repayment term.
If the Trump administration relies on the 8th Circuit’s reasoning, the Department of Education could use the negotiated rulemaking process to strip student loan forgiveness from the ICR and PAYE plans. The department could also change the payment calculation formulas to make monthly payments more expensive under these plans. Some borrowers might be able to switch to the IBR plan if that happens, but others (such as Parent PLUS borrowers) would not qualify for IBR, and may have no viable alternative affordable repayment options.
“Breaking the promise that all borrowers can become debt-free by making income-based payments for a set number of years would increase the number of older adults still struggling with loans taken out decades ago for school or job training and leave low-income older adults living on Social Security Disability and Retirement benefits with no way out of their student debt burden,” said Alpha Taylor, staff attorney at the National Consumer Law Center, in a statement on Monday. “It would also increase their likelihood of default, worsening the default crisis among older adults and putting them at risk of having their Social Security benefits seized.”
The negotiated rulemaking process typically takes at least a year, so any changes to PAYE and ICR would probably not go into effect until sometime in 2026.
Republicans In Congress Propose Eliminating Student Loan Forgiveness Under IDR Plans
If the courts or the Trump administration don’t upend the federal income-driven repayment system, congressional Republicans might do so through legislation. GOP leaders are actively working on a massive budget reconciliation bill that would cut government spending to offset the costs of extending massive tax cuts. And by using the reconciliation process, they could bypass the Senate filibuster, allowing the measure to pass on party-line votes.
Republican leaders in Congress have put forward two proposals that could be rolled into the reconciliation bill. The first, the College Cost Reduction Act introduced by Rep. Virginia Foxx (R-N.C.), would repeal all existing income-driven repayment plans, including even IBR, and replace these plans with a new repayment plan. While this plan would also be based on income, it would eliminate student loan forgiveness after a fixed period of time, potentially leaving people stuck with their student debt for decades.
“Under this proposal, many low-income borrowers would be saddled with paying student loan debt for the rest of their lives,” said the National Consumer Law Center in a fact sheet. “For these borrowers, the change would mean no light at the end of the tunnel — no opportunity to be free of student debt in their lifetime. This would increase the already growing problem of low-income and working-class people struggling with student loan debt in old age, at the cost of their financial security.”
Under the most recent version of College Cost Reduction Act released last year, current borrowers would maintain access to existing plans. The changes would apply only for newly issued student loans.
The second proposal is potentially just as concerning. According to another National Consumer Law Center fact sheet, the Streamlining Accountability and Value in Education for Students Act, introduced by Republican leaders in the Senate, “would eliminate ICR, SAVE, and PAYE for both new and existing borrowers,” meaning current borrowers would not be grandfathered in. These plans would be replaced by a new income-driven repayment option that would “not be available to Parent PLUS borrowers.” Existing borrowers may still be able to repay their student loans under IBR, but IBR is typically more expensive than PAYE. And Parent PLUS borrowers are ineligible for IBR, so they may have no viable income-driven repayment plan options at all if this proposal is enacted.
“As a result, new and existing Parent PLUS borrowers would be left without access to any affordable repayment options,” warned the National Consumer Law Center.
On Tuesday, a coalition of more than 50 organizations including national labor unions, civil rights groups, and consumer protection organizations sent a letter to House Speaker Mike Johnson (R-La.), urging him to reject the proposed changes to federal student loan forgiveness and repayment programs.
The proposals would “stall economic opportunity and raise costs by making student loans more expensive by removing existing Income-Driven Repayment plans, increasing borrowers’ monthly payments, and removing the opportunity for loan cancellation after years of repayment,” wrote the coalition.
If either of the Republican legislative proposals are enacted, many student loan borrowers “would struggle for decades and die trying to pay off their student loan debt” because of higher payments and the elimination of student loan forgiveness at the end of a fixed term, said the NCLC.