460,000 student loan borrowers to be kicked off from repayment plan? Know the big changes from August 1

Time of India

19-07-2025

Student loan borrowers to be denied repayment plan?
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Student loan payments to change from August 1
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President Donald Trump has dismantled the Department of Education and this is having significant consequences for millions of borrowers and the broader education system. The department which oversaw federal student loan programs, distributed financial aid and enforces policies meant to protect borrowers from predatory lending practices.But eliminating the Department of Education (DOE) means uncertainty into loan servicing, possibly delaying repayments, altering forgiveness programs or making it harder for students to access federal aid. The department will reject nearly a half-million applications from people seeking to make lower payments on their student loans , reports Politico citing internal documents.The report suggests that the department will reject applications of 460,000 federal student loan borrowers who selected the lowest monthly option for a payment plan based on their income. They make up about 31 percent of a 1.5 million application backlog for borrowers who are seeking Income-Driven Repayment, one of many options typically available for borrowers having difficulty paying back their loans.A spokesperson for the Education Department told Politico that the SAVE Plan — introduced during the Biden administration — offers the lowest monthly payment option, capping payments at 5% of a borrower's discretionary income for undergraduate loans and 10% for graduate loans. However, the plan has been blocked by the courts since June 2024.'Loan servicers cannot process these applications as SAVE is no longer an option, as it is illegal,' a department spokesperson wrote in a statement to POLITICO.On August 1, the Trump administration will resume interest charges on the accounts of around 8 million borrowers, who had previously been granted an interest-free forbearance period under the Biden administration's Saving on a Valuable Education (SAVE) Plan, reports NewsWeek.The Trump administration said bringing back the accrual of interest rate on loans was to "comply with a federal court injunction that has blocked implementation of the SAVE Plan, including the Department's action to put SAVE borrowers in a zero percent interest rate status."The Trump administration has deemed the SAVE plan "illegal," saying it intends to bring back "fiscal responsibility to the federal student loan portfolio." "For years, the Biden Administration used so-called 'loan forgiveness' promises to win votes, but federal courts repeatedly ruled that those actions were unlawful," McMahon said."Congress designed these programs to ensure that borrowers repay their loans, yet the Biden Administration tried to illegally force taxpayers to foot the bill instead," she added.To put it in simple terms, it means the change will see borrowers being charged more than $27 billion in interest over the next 12 months, which will have wide repercussions on the lives of students.In March, Trump signed an executive order calling for the dismantling of the U.S. Education Department, advancing a campaign promise to take apart an agency that's been a longtime target of conservatives. Trump has derided the Education Department as wasteful and polluted by liberal ideology.The order says the education secretary will, 'to the maximum extent appropriate and permitted by law, take all necessary steps to facilitate the closure of the Department of Education and return authority over education to the States and local communities.'