July 4, 2025
New Federal Bill Overhauls Student Loan Repayment, Limits Borrower Options
“These changes will result in a massive wave of defaulted student loans, leading to devastating financial consequences and a surge in private student loan lending."
A sweeping federal spending package, signed into law by President Donald Trump on July 3, will significantly reshape how millions of Americans repay their student loans, introducing less generous options and imposing new restrictions on borrowing.
The legislation eliminates existing income-driven repayment (IDR) plans and curtails borrowers’ ability to defer payments during financial hardship, drawing sharp criticism from advocates who warn of increased financial strain.
The new law replaces current IDR plans with two primary options for new federal student-loan borrowers. The first, termed the Repayment Assistance Plan, will cap monthly payments at 1-10% of a borrower’s income, with a minimum fee of $10. This plan waives unpaid interest, and any remaining balance will be forgiven after 30 years. However, it is notably less generous than former President Joe Biden’s SAVE plan, which the bill abolishes. The SAVE plan offered forgiveness after 10 years for borrowers with original balances of $12,000 or less and reduced undergraduate loan payments from 10% to 5% of discretionary income. The SAVE plan, currently stalled in court, will be phased out, requiring its 8 million enrolled borrowers to transition to a new plan between July 2026 and July 2028.
The second repayment option introduced by the bill is a new standard repayment plan. Unlike existing fixed-term plans, this new structure will set fixed monthly payments throughout 10 to 25 years, with the repayment duration varying based on the borrower’s original loan balance.
Beyond repayment structures, the legislation also eliminates borrowers’ ability to defer student loan payments due to economic hardship or unemployment. The standard forbearance option will now serve as the sole avenue for delaying payments. Furthermore, the bill dismantles the Graduate PLUS program, which previously allowed graduate and professional students to borrow up to the full cost of attendance. While the Parent PLUS program remains in place, a new $65,000 lifetime cap will be imposed on these loans.
In a move aimed at addressing college accountability, the bill mandates that academic programs whose graduates do not earn more than the median income of high school graduates in their respective states will lose federal student loan eligibility. The legislation also extends the Pell Grant program to encompass shorter-term academic programs, a measure previously advocated by Secretary of Education Linda McMahon.
Borrower advocacy groups and Democratic lawmakers have strongly opposed the bill’s provisions. Sen. Elizabeth Warren stated that the legislation will inevitably lead to higher student loan payments for Americans. Natalia Abrams, president of the advocacy group Student Debt Crisis Center, condemned the bill, asserting that “this dangerous bill abandons millions of borrowers, leaving them with few, often inaccessible repayment options and deepening their financial insecurity.”
“These changes will result in a massive wave of defaulted student loans, leading to devastating financial consequences and a surge in private student loan lending.”
“Lawmakers have chosen to plunge their constituents into economic uncertainty by removing a majority of the remaining protections and programs that exist for Americans with student loan debt,” added SDCC Executive Director Sabrina Calazans. “If this bill is signed into law, students, borrowers, parents, and families will see a direct hit to their pocketbooks and, as a result, there could be a mass wave of defaults.”
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