Key facts
- New federal student loan rules will increase monthly payments and extend repayment terms for low-income borrowers.
- The changes remove protections that excluded a portion of income needed for basic needs from payment calculations.
- Temporary postponements for unemployment or economic hardship will no longer be available.
- The repayment period for income-based plans will extend to 30 years from 20 years for new borrowers.
- Millions of borrowers enrolled in the SAVE plan will be transitioned to different repayment options.
- A new online process will simplify loan rehabilitation for borrowers seeking to exit default.
New federal student loan rules set to take effect on July 1 will significantly alter repayment terms, potentially increasing costs and extending debt periods for many borrowers, particularly those with low incomes. Advocates express concern that these changes, combined with the discontinuation of the SAVE plan for millions, could exacerbate student loan defaults.
The U.S. Department of Education's announced final rules will impose new borrowing limits and change repayment options. A key change removes protections that previously excluded a portion of income needed for basic needs from payment calculations, leading to higher monthly payments for low-income borrowers. Additionally, the option to temporarily postpone payments due to unemployment or economic hardship will be eliminated. For new borrowers, the time required to make income-based payments before qualifying for loan forgiveness will increase from 20 years to 30 years.
These changes are expected to impact millions of borrowers, with advocates like those at the National Consumer Law Center (NCLC) warning of substantial increases in monthly payments. Abby Shafroth, managing director of advocacy at NCLC, noted that low-income borrowers are at high risk of being unable to afford their new payments, potentially swelling the ranks of those already in default.
However, the new rules also include a positive development: an easier pathway for borrowers to exit default. Legal aid groups advocated for a new online process that allows borrowers to match income data from tax records for loan rehabilitation, simplifying a previously cumbersome procedure. The rules also address re-defaulting by allowing borrowers to request an income-driven repayment plan at the same time they request loan rehabilitation, ensuring payments remain affordable post-rehabilitation.