Student-loan overhaul takes effect, borrowers face decisions
Borrowers could face "substantially higher, and consequently unaffordable, payments," Democratic senators warn.
A sweeping reset of federal student lending takes effect Wednesday under what the Trump administration has marketed as the "big, beautiful bill."
The changes mean that more than 7 million borrowers enrolled in the Biden administration's Savings on a Valuable Education (SAVE) Plan will have to another repayment program within 90 days, forcing millions of student loan borrowers to incur drastically higher monthly student loan bills.
“We are extremely concerned that the ... decision to force SAVE borrowers who do not take action in time into the Standard Plan or the new Tiered Standard Plan will result in substantially higher, and consequently unaffordable, payments,” a group of Democratic senators wrote to U.S. Education Department Secretary Linda McMahon.
The Senators’ letter follows a decision from the U.S. Court of Appeals for the Eighth Circuit, which directed the lower court to vacate the SAVE Plan.
“Millions of borrowers on SAVE have been stuck in financial limbo through no fault of their own as partisan lawsuits challenging SAVE have played out in court. These borrowers deserve to have the time, critical information, and support necessary to successfully enroll in another affordable repayment plan and continue to pay down their loans,” the senators said in their letter.
With SAVE officially dead, borrowers taking out new loans or consolidating existing ones now have two repayment options:
- The Repayment Assistance Plan, pitched as a successor to the Biden-era Saving on Valuable Education plan, sets monthly payments based on adjusted gross income; borrowers will need to make payments for 30 years before they can qualify for loan cancellation.
- The Tiered Standard Plan calculates payments from the remaining balance over a 10-to-25-year term. A separate income-based plan for those with significant debt allows payments of 10 percent of discretionary income with forgiveness after 25 years.
New borrowing limits
NBC reported lifetime federal borrowing is being capped at $257,500. Graduate students can borrow up to $20,500 annually with a $100,000 lifetime cap; professional students, including medical students, may borrow up to $50,000 per year and $200,000 lifetime. About 1.8 million current graduate borrowers get a three-year exemption from the new caps. Parents borrowing under PLUS will be capped at $20,000 per dependent per year with a $65,000 lifetime per-child cap.
Interest math also changes. Borrowers who sign up for autopay by Sept. 30 will qualify for a 1 percentage-point rate cut; borrowers already enrolled get 0.25 point that ratchets up to a full point. The relief is temporary, available only until June 30, 2028, and excludes some older loans. New unsubsidized graduate-loan rates are listed at 8.07 percent; new non-government-backed loans at 6.52 percent.
James R. Hood
Earning power of graduates measured
Separately, Reuters reported that the Education Department on Monday said it was "finalizing new federal student loan rules that would tie schools' federal loan access to the earning power of graduates," marking the Trump administration's latest pressure on colleges and universities.
The Wall Street Journal and CBS News' video coverage corroborated the timeline. Reuters also noted that a federal judge blocked a separate set of Trump-administration student-loan restrictions on June 25, foreshadowing more litigation around the package.
For families weighing a fall start, the package shifts the calculus in three concrete ways: less money available for graduate and professional school; more downside if a chosen program produces graduates whose earnings cannot service the debt; and a brief window — through Sept. 30 — to lock in a 1-point interest cut by enrolling in autopay.
More information on the various options is available online.
