Federal student loan borrowers will have only two repayment options by 2028

Republicans argue that the plan, tucked inside Trump’s $3.3 trillion budget reconciliation bill, will not only save the federal government $278 billion by 2034 but also simplify and streamline the federal student loan borrowing and repayment process.

The bill terminates existing income-contingent repayment plans – including the ICR plan, PAYE plan, and now defunct Biden-era SAVE plan – and replaces them with two alternatives. Those options are either a Standard Repayment Plan or a Repayment Assistance Plan based on the borrowers’ income. 

The Standard Repayment Plan, which currently lasts 10 years, will be modified to allow borrowers to pay a fixed monthly payment, based on the loan amount instead of income, over a period of 10 to 25 years.

Lower-income borrowers could choose the Repayment Assistance Plan and pay a lesser percentage of their adjusted gross income, capped at 10%. 

The government would also waive the loan interest portion if the monthly payments do not cover interest, ensuring that borrowers who make regular payments don't see their outstanding balance go up. Borrowers who still have outstanding balances after 30 years of payments would see the rest of their loan forgiven.

Borrowers currently on the plans set to be phased out will have until July 1, 2028, to switch to one of the new plans; otherwise, they will automatically be placed on the Repayment Assistance Plan on that date. 

The Republican bill also makes changes to how much federal aid post-college students can borrow. It eliminates the GRAD Plus program, instead capping graduate student borrowing at $20,500 per year and $100,000 over a lifetime. Currently, graduate students can use GRAD Plus loans to fully cover the cost of attendance.

Professional students, including those in law and medical schools, will only be able to borrow $50,000 per year and $200,000 over a lifetime. And Parent PLUS loans will be cut off at $65,000 per student.

The bill allows borrowers on either plan with defaulted loans to rehabilitate their loans twice instead of once, although starting with loans issued after July 1, 2027, borrowers will no longer be able to defer loan repayment based on economic hardship or unemployment.

It also creates Workforce Pell Grants for those in short-term job training programs and finances the Pell Grant shortfall.

As of January 2024, the U.S. Department of Education holds roughly $1.5 trillion in outstanding student loans owed by roughly 43 million borrowers. Only about half that number remained up to date with their loan repayments, according to the Government Accountability Office, constituting what many have called a “student loan crisis.”