The last several weeks have been hugely consequential for more than 40 million student loan borrowers, with some of the most significant updates in more than a year. And the impacts of these recent events could touch every aspect of student debt from disbursement to loan repayment and student loan forgiveness.
Between court actions, legislation working its way through Congress, and regulatory updates, nearly every single federal student loan borrower may eventually be impacted by these recent changes. And for some borrowers, the consequences could be enormously costly. Here’s a breakdown.
Student Loan Repayment Processing Remains Backlogged For 10 Million Borrowers
The federal student loan repayment system may have never been in as much turmoil as it is today. At least eight million borrowers who had enrolled in the SAVE plan, a Biden administration income-driven repayment program, continue to be stuck in a forbearance due to an ongoing legal challenge over the future of the program. As a result, these borrowers have no payments due and their balances are not accruing interest, but they cannot make progress toward student loan forgiveness. This is true for both income-driven repayment plans, as well as Public Service Loan Forgiveness, or PSLF.
Meanwhile, much of the rest of the IDR application system remains stuck in administrative uncertainty. The Trump administration had essentially shut down the entire IDR application system in February following a new court ruling related to the ongoing SAVE plan legal challenge. That action has had profound downstream effects for borrowers in other IDR plans that have nothing to do with SAVE, including those in IBR, ICR, and the PAYE plan.
After a national teacher’s union and student loan borrower legal group filed a lawsuit against the Trump administration over the IDR system shutdown, the Department of Education resumed application processing in April. But the department revealed in a court filing in May that more than 1.9 million IDR applications remain unprocessed, and less than 80,000 applications were fully adjudicated during the month of April. As a result, hundreds of thousands of borrowers have been unable to change their repayment plan or recalculate their monthly payments – options that the Department of Education is required to offer borrowers under federal law.
According to anecdotal reports, loan servicers are first prioritizing IDR applications submitted by single student loan borrowers with a family size of 1, as they can be faster to process than IDR requests submitted by married borrowers due to additional complexities associated with those applications. But it is unclear if the Department’s slow processing pace will accelerate. Another status report is due to be filed in less than two weeks.
PSLF Buyback Applications Also Backlogged for 50,000 Student Loan Borrowers
The Department of Education also revealed in the same court filing that only a fraction of more than 50,000 PSLF Buyback applications have been processed. Many of these applications have been sitting with the department’s PSLF Reconsideration unit for six months or longer.
PSLF Buyback is supposed to give borrowers an opportunity to receive credit toward Public Service Loan Forgiveness for certain past periods of deferment and forbearances, which usually cannot count toward student loan forgiveness under the program. The buyback program allows borrowers, upon approval, to make a lump sum payment equivalent to what they would have paid if they had been making qualifying PSLF payments during the period, provided that they were also working in qualifying public service employment at the time.
Many borrowers who have been stuck in the SAVE plan forbearance, are pursuing PSLF, and are nearing their eligibility threshold for student loan forgiveness have been trying to utilize the PSLF buyback program to qualify for a discharge. But according to last month’s court filing, the Department of Education has processed less than 2,000 applications out of more than 50,000 that remain in the queue. Department officials have provided no explanation for the delays, and have not signaled when – or whether – processing will accelerate. Another update is expected in two weeks.
House Passes Legislation That Would Reshape Student Loan Forgiveness And Repayment
Meanwhile, last month House Republicans narrowly passed sweeping legislation that would fundamentally reshape the federal student loan system. The so-called “One Big Beautiful Bill Act,” intended to slash government spending to offset the costs associated with massive tax cuts, would impact nearly every element of federal student aid including disbursement, repayment, and loan forgiveness.
Under the terms of the legislation, the Graduate PLUS and Parent PLUS programs would be phased out or severely limited, which advocates have warned will force millions of families to turn to riskier and costlier private student loans, or forego higher education altogether. The bill would also repeal several popular student loan repayment plans including the SAVE plan, ICR, PAYE, and a newer and more affordable version of IBR. Borrowers who have been enrolled in these plans would be forced to change to a modified version of IBR that could result in much higher payments. One student loan borrower advocacy organization estimated that some borrowers could pay $5,000 or more per year in additional payments as a result. The bill would also create a new IDR plan that may be somewhat more affordable, but would add five to 10 years of additional repayment to a borrower’s term before they would qualify for any student loan forgiveness, forcing many borrowers to remain in debt for 30 years or longer.
The bill now heads to the Senate, where it may undergo further changes before the legislation can receive final approval from Congress. It would then be sent to President Trump for his signature.
Department of Education Takes Steps To Change Student Loan Forgiveness And Repayment Plans
As Republican lawmakers in Congress take steps to remake the federal student loan system through legislation, Trump administration officials at the Department of Education are making moves to reshape key federal student loan forgiveness and repayment programs through regulatory changes.
Last month, the department moved ahead with negotiated rulemaking, a lengthy process that would result in changes to federal regulations. The department is specifically targeting Public Service Loan Forgiveness in this negotiated rulemaking session. While administration officials have not expressly revealed what, specifically, they want to change about PSLF, most observers expect the department to try to enact regulations implementing President Trump’s March executive order to cut off PSLF eligibility for organizations that engage in activities the administration deems to be “illegal” or “improper.” Some legal experts have warned that if elements of the order are enacted, it could unlawfully allow the administration to deny student loan forgiveness eligibility for organizations or government entitles that simply oppose the administration’s priorities.
The department’s negotiated rulemaking process is also targeting the PAYE and ICR plans, two popular IDR plans that allow borrowers to make payments based on their income, with eventual student loan forgiveness after 20 or 25 years in repayment. As with PSLF, the department has not confirmed what officials want to change about these programs. But some observers expect the department to try to eliminate student loan forgiveness under these plans, based on a recent court ruling from a federal appeals court that questioned the programs’ underlying legal authority. It is unclear what would happen to borrowers who reach the threshold for student loan forgiveness and then have the benefit cut off by the anticipated regulatory updates.
Student Loan Garnishment And Collections Begins Hitting Borrowers
Last month, the Department of Education also resumed collections actions against borrowers in default on their federal student loans. Such actions had been largely suspended for the last several years due to pandemic-era relief programs and associated extensions.
In early May, millions of borrowers began receiving notices that they would be referred to the Treasury Offset program in the coming weeks. Treasury Offset allows the government to garnish the wages of federal employees, offset Social Security benefits, and intercept federal tax refunds. Starting as soon as this month, the Department of Education may initiate administrative wage garnishment proceedings, which would allow the government to seize a portion of wages from defaulted federal student loan borrowers working in non-federal employment.
More than five million defaulted federal student loan borrowers are currently in the department’s crosshairs. But that figure could double by the end of the year as hundreds of thousands of additional borrowers fall behind on their monthly payments. The department has said it is engaging in a robust communications campaign to notify borrowers of the coming risks, encourage them to get out of default, enroll in IDR plans, and pursue federal student loan forgiveness programs. But advocacy groups have warned that given the current turmoil facing many of these programs, a significant number of borrowers are going to fall through the cracks. And the financial ramifications could be enormous.
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