Harv's Corner 09/08/2025

Harv's Corner

It's crucial to pay attention to the massive student loan changes happening now because they will directly impact your financial future. New legislation is set to overhaul repayment plans, potentially increasing monthly payments and extending the time it takes to achieve forgiveness for many. Programs like the Grad PLUS loan are being eliminated, and new borrowing limits are being established, which could affect access to funding for higher education. By understanding these shifts today, you can strategically manage your existing loans, make informed decisions about future borrowing, and position yourself to take advantage of any remaining benefits before they disappear, ultimately saving you a significant amount of money and stress.

Student Loan Borrowers Must Act!

If you have outstanding Federal student loans, you must make some new repayment decisions in the coming months.  Millions of borrowers participated in plans that reduced monthly payments based on income -- sometimes to zero!  Now, all of those plans are going away as of July 1, 2026. 
 
There is still an opportunity to pay less on a monthly plan than the standard 10-year repayment terms require -- even if you have a good income.  But that requires action on your part.  And this is equally important for parents who have taken out Parent Plus loans.

If you have an outstanding Federal student loan -- or know someone who does -- please share this newsletter, and urge them to seek advice about their situation immediately. 

Millions are Impacted - 
Nearly 8 million borrowers were enrolled in the now-cancelled SAVE (Saving on a Valuable Education) Plan. These borrowers had been placed in “administrative forbearance” — meaning payments were paused and no interest accrued — from July 1, 2024 until August 1, 2025, when interest started accruing again. An additional 2 million student loan borrowers had pending applications for income-driven (IDR) repayment plans. They were also in forbearance while awaiting processing of their applications. All of those borrowers will suddenly have to begin making monthly payments — and those payments will have a huge impact on the monthly budgets of nearly 10 million people.

Not making the new, higher payments will create a huge increase in the debt outstanding as interest piles up.  And the government is now going after borrowers who have defaulted. Borrowers must act immediately to select one of the still-allowed income-driven repayment plans. That means contacting your servicer or an attorney or advocate familiar with student loan law to determine your eligibility for the remaining plans.

The Only Remaining Plans Next Year
–Income-Based Repayment (IBR). This existing plan has just been modified so borrowers no longer need to prove financial hardship. Payments are based on a percentage of discretionary income, with forgiveness after a set period of time — usually 20 or 25 years. –Income-Contingent Repayment (ICR). These ICR plans will continue for existing borrowers, and existing applications are still being processed, but future enrollment will be restricted.

Choices After July 1, 2026
Your choices will be severely limited in the future if you don’t act now.

-Repayment Assistance Plan (RAP).
This is a new plan, replacing many of the older ones when most expire in July 2026. RAP has a $10 minimum monthly payment, regardless of income. It calculates payments based on a percentage of adjusted gross income, minus an allowance for dependents. Even if low payments are insufficient to cover interest, the principal is reduced by $50/month, and unpaid interest is waived. Loan forgiveness comes only after 30 years of payments. –

Standard 10-Year Repayment Plan.
This traditional plan requires much larger monthly payments but minimizes interest paid over the life of the loan. Borrowers who are currently in the PAYE plan, Graduated Payment Plan, Extended Graduated Plan, or Extended Fixed Plan must switch before July 1, 2026 — or their choices will be limited to these two plans! Also note that unless Congress acts to extend current law, student loan amounts that are forgiven will be considered taxable income starting in 2026. SAVE Plan borrowers working toward legal loan discharges through PSLF must switch to an alternative IDR repayment plan to start making qualifying payments. Ask your servicer to make sure your qualifying payments are transferred to any new plan.

What To Do
Existing participants in the plans that are being eliminated have to make some choices. I turned to student loan expert Rae Kaplan of Kaplan Law Firm (www.FinancialRelief.com) for her analysis and advice. She advises borrowers to act quickly. Moving into IBR or ICR now keeps you from being totally locked out of income-driven repayment plans in July, 2026. Kaplan reminds borrowers that there is no longer a need to prove financial hardship to enroll in an income-driven repayment plan.

She notes: “Under the new RAP plan, there is a $10 minimum monthly payment — even if your income is very low. But if you qualify for IBR before the July 1, 2026 deadline, you may still have a $0 payment depending on your income and family size.” Kaplan also strongly advises against requesting forbearance, if possible. General forbearance still exists for a maximum of 36 months (granted in 12-month intervals), but the drawback is that interest continues to accrue — increasing your total loan balance. “Instead,” says Kaplan, “if you qualify for a $0 or low payment under an income-driven repayment plan, take that instead of forbearance. At least you’ll be making progress toward forgiveness, and you will be “grandfathered in” under the old rules with more flexibility and lower payment options.”

If you have outstanding student loans, please don’t ignore this advice. The Department of Education has already signaled its intent to go after delinquent borrowers after a five-year hiatus. It has recently emailed more than 23 million borrowers — and collected nearly $282 million on defaulted federal student loans through voluntary payments and recapturing tax refunds. Next, they promise wage garnishments. Confusing, yes! But do not let the changes overwhelm you. Either discuss your situation with a qualified advisor like Kaplan, or use the “Loan Simulator” at StudentAid.gov to review your choices.

Parent Plus Loans Impacted, Too!
Parents with existing Plus loans face the same July 1, 2026 deadline facing student loan borrowers, says Kaplan.

These parent borrowers must immediately consolidate all their Federal Parent Plus loans – and enroll in an Income-Driven Repayment (IDR) plan, such as the Income Contingent Repayment (ICR), before July 1, 2026.
After that date, those who are not already enrolled in an Income Driven Repayment plan will be locked out permanently. Then their only repayment option will be the Standard 10-Year Plan: which carries large monthly payments, often as high as a mortgage.

Yes, dealing with outstanding student loans has been confusing and often overwhelming -- but these are the basics:  Interest is already accruing, and your repayment plan is likely ending.
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Don't wait until the crunch next Spring -- when everyone is trying to get into a new plan before the July 1, 2026 deadline.  Examine your alternatives at StudentAid.gov.  Then contact your servicer immediately to start the process.

Procrastinating is not a good option.  And that's The Savage Truth.