Jean Chatzky
Do one thing: It’s important to note that some of the potential changes to federal student loans included in the latest budget reconciliation bill won’t take effect until July 2026.
Latest Student Loan News
After a five-year pause, the U.S. Department of Education announced it will reinstate collections on defaulted federal student loans this summer, a move that could initially impact at least 5 million borrowers. In Part One of our SavvyMoney Student Loan Repayment Guide, we examined who would likely face serious penalties and the steps they could take to avoid default.
Student Loan Legislation
With legal challenges still tangled in some federal student loan repayment programs, figuring out where millions of other borrowers will land can be more than a little confusing. On May 22, members of the U.S. House of Representatives passed the reconciliation legislation by a 215 to 214 vote.
We checked in with student loan experts to discuss some of the most potentially impactful portions of the bill, related to student loans, that are headed to the Senate for further review.
Top Student Loan Repayment Questions Answered
In part two of our student loan repayment guide, we explore the potential changes to student loan programs being considered by Congress as part of a budget reconciliation bill and the potential impacts on current and future borrowers, including students and parents.
Are Student Loan Programs Being Eliminated?
Possibly. Mark Kantrowitz, an expert on student financial aid and student loans and author of five books, including “How to Appeal for More College Financial Aid,” has been following the new budget reconciliation bill closely.
Which Ones?
The proposed legislation aims to eliminate several federal student loan programs, including:
- Subsidized Federal Direct Stafford Loan for undergraduate students, which may impact low and moderate-income students. (Subsidized Stafford Loans for graduate students ended in 2012.)
- Also on the chopping block is the Federal Direct Grad PLUS Loan.
- Access to the Federal Direct Parent PLUS Loan may be restricted to certain situations.
What’s the Status of the SAVE Program?
Before leaving office, the Biden administration pitched a new form of income driven, or income-based repayment called the SAVE act (Saving on a Valuable Education) that lowered the amount of money being repaid for a lot of people, says Jillian Berman, a student loans expert and author of the book: “Sunk Cost: Who’s to Blame for the Nation’s Broken Student Loan System and How to Fix It.”
“So the SAVE program is currently mired in litigation,” says Berman. “It has been temporarily blocked by federal court, but it may be fully knocked down in the coming weeks or months.” There are about 8 million people in the SAVE program who are now in forbearance, Berman explains, to hold them harmless while the situation is litigated. (Forbearance means a temporary pause in payments that a loan servicer can put you in.)
What Type of Reductions in Payment Plans are Expected?
There are currently 12 repayment plans for federal student loan borrowers, which are likely to be replaced with 2 plans for new borrowers beginning in July 2026, according to Kantrowitz.
What About the Proposed Reduction in Deferment Options?
Under current law, he says, borrowers who are struggling financially have several options to avoid default, which means they have not made a payment for more than nine months. Those options include a loan deferment or forbearance. “The Republican budget reconciliation repeals unemployment and economic hardships and limits general forbearance to 9 months out of every 24 months.”
Once the bill becomes effective in July 2025, that means two of the three deferment options will go away, Kantrowitz says.
How Many Federal Student Loan Borrowers Could be in Default This Year?
Kantrowitz predicts there could be approximately 12 million borrowers in default by the end of 2025, based on the number of those already behind on their federal student loan payments.
Need Help Paying Back a Federal Student Loan?
“If you are somebody who’s graduating now, and you want to access these plans,” says Berman:
- “You should apply to whatever is available.” The thing about student loans is that you apply to what’s available and;
- “If things change, you can switch.”
She says it’s likely that Congress is talking about moving borrowers into their new version of income-driven repayment (IDR) by 2026.
- Deferment or Forbearance. For a borrower who is struggling financially, Kantrowitz says, with a short-term financial difficulty – say they have a temporary health issue, seeking a deferment or forbearance is are good option. “For someone with a more long-term financial difficulty,” he says, “switching into a different repayment plan will be a good option.”
Will the Budget Reconciliation Bill Lower Annual Loan Limits?
As it stood on May 22, the bill lowers annual loan limits for some borrowers and raises them for others, says Kantrowitz, noting that loan limits haven’t been updated since 2008, and were due for an increase.
Student Loan Repayment Resources
For more information on current federal student loan repayment options, visit https://studentaid.gov/idr/
With reporting by Casandra Andrews
Chris O'Shea
