Starting July 1, millions of borrowers will face an important decision regarding their student loans, as new repayment options are introduced due to changes enacted by the Trump administration. These changes follow the dismantling of the Biden-era repayment plan known as SAVE, which aimed to provide an affordable income-driven repayment option.
The new legislation, passed last summer, replaces the SAVE plan, affecting approximately seven million people who were enrolled in the program. With payments on hold for nearly two years due to legal challenges, borrowers must now find a new plan and resume payments.
Beginning July 1, federal loan servicers will issue notices to SAVE enrollees detailing the deadlines for action. Borrowers must select a new repayment plan from the updated options or risk having the government make the choice for them. This transition comes at a challenging time for many, as inflation rises, utility and gas prices increase, and healthcare expenses grow.
Betsy Mayotte, president of The Institute of Student Loan Advisors, commented on the widespread anxiety among borrowers. “There’s a lot of anxiety out there,” she said. “It’s not just about student loan payments going up. It’s everything hitting at once.”
While SAVE borrowers face immediate deadlines, others will also be affected by the changes. Two new repayment programs are being introduced, and several existing plans will be phased out. Familiarizing themselves with the new options will help borrowers manage their situation and develop a repayment strategy.
The table below illustrates the monthly payments a borrower with $60,000 in student debt, a 6.8 percent interest rate, and a household of two would experience under various repayment plans:
Adjusted gross income Standard 10-year RAP IBR (15%) IBR (10%) PAYE ICR $30,001 $690 $25 $0 $0 $0 $148 $50,001 $690 $158 $228 $152 $152 $481 $70,001 $690 $358 $478 $319 $319 $611 $90,001 $690 $625 $690 $486 $486 $611 $110,001 $690 $867 $690 $652 $652 $611
The new RAP plan uses strict income cutoffs, where earning slightly more could push a borrower into a higher bracket. It’s important to note that the Pay as You Earn (PAYE) and Income-Contingent Repayment (ICR) plans will no longer be available after July 2028.
Understanding these options and the implications of the upcoming changes will be crucial for borrowers to manage their loan repayments effectively.