5 Key Student Loan Repayment Updates As Defaults Rise, Backlogs Grow

Forbes

3 days ago

Federal student loan borrowers are struggling as the repayment system remains mired in turmoil. Hundreds of thousands of applications for repayment plans and student loan forgiveness programs remain stuck in backlogs. At the same time, huge changes imposed by the courts, the Trump administration, and Congress are reshaping the landscape for borrowers and making it more confusing than ever to figure out what their options are.
The result of this confluence of events is a surge in student loan delinquencies. According to the Federal Reserve Bank of New York, student loan delinquency rates have steadily risen this year.
'In the second quarter of 2025, 10.2% of aggregate student debt was reported as 90+ days delinquent,' said the bank in its quarterly report released this month. 'Transition into early delinquency held steady for nearly all debt types; the exception was for student loans, which saw another uptick in the rate at which balances went from current to delinquent," although the bank noted that this uptick was also related to the resumption of credit reporting following a nearly five-year pause.
Nevertheless, the Department of Education has acknowledged the fact that millions of borrowers are falling behind on their student loan payments. And the Trump administration anticipates that student loan default rates could double by the end of this year.
'More than 5 million borrowers have not made a monthly payment in over 360 days and sit in default—many for more than 7 years—and 4 million borrowers are in late-stage delinquency (91-180 days),' said the department in a statement in April. 'As a result, there could be almost 10 million borrowers in default in a few months. When this happens, almost 25 percent of the federal student loan portfolio will be in default.'
Here are the latest updates for student loan borrowers struggling with repayment and loan forgiveness, and what they should know.
Student Loan Interest Resumes For SAVE Plan Borrowers
One of the biggest recent changes impacting the federal student loan system is the resumption of interest charges for borrowers in the SAVE plan forbearance. For more than a year, borrowers who selected SAVE (an income-driven repayment program launched by the Biden administration in 2023) have been in an involuntary administrative forbearance, which paused payments and interest. The forced forbearance is the result of a court injunction that blocks the program following a legal challenge brought by a coalition of Republican-led states.
The Trump administration justified the restarting of interest accrual by pointing to a recent court ruling in the ongoing SAVE plan litigation. But critics point out that nothing in that court decision explicitly required the department to resume interest. Regardless, many borrowers who have been stuck in the SAVE plan forbearance now feel pressure to apply to switch to a different repayment plan, given that interest is accruing again as of August 1 and the forbearance period still doesn't count toward student loan forgiveness for income-driven repayment plans or Public Service Loan Forgiveness, or PSLF.
Backlogs And Denials For Student Loan Borrowers Applying To Switch Plans
But student loan borrowers applying to switch to a different repayment plan are encountering a different problem: a massive backlog of applications. According to a court filing submitted by the Department of Education last month, more than 1.5 million applications remain in the queue, and many borrowers have been waiting months for a decision.
To make matters worse, the department indicated that it would be denying nearly a third of these outstanding applications (close to 500,000) as soon as this month. Specifically, borrowers who used an earlier version of the IDR application and selected either SAVE (which remains blocked) or the option to allow their loan servicer to pick the most affordable repayment plan option will be rejected. These borrowers will then have to reapply for an income-driven plan using an updated version of the application, essentially adding themselves back to the queue.
If there's any good news here, it's that borrowers who apply (or reapply) for an income-driven repayment plan online at StudentAid.gov, and consent to using the newly restored IRS data retrieval tool to import their income data directly from their federal tax return, should experience relatively fast processing, potentially within a few weeks or so.
'Providing consent eliminates much of the time-consuming work of filling out an application,' says Department of Education guidance. 'By electronically importing your financial information, you ensure your application has the most up-to-date data. Plus, having your consent on file means your IDR plan will be automatically recertified each year, if eligible.'
Student Loan Forgiveness Under IBR Remains Paused
Historically, borrowers who repay their student loans under an income-driven repayment plan would be able to qualify for student loan forgiveness for any remaining balance after 20 or 25 years in repayment, depending on the plan. But loan forgiveness under the SAVE, ICR, and PAYE plans has been blocked for much of this year following a court order in the ongoing SAVE plan litigation saga. All three of these plans were created through the same underlying federal statute, and the authority to provide student loan forgiveness under that statute is now being scrutinized.
But student loan forgiveness through IBR, which was created separately by Congress, is not blocked by any court. And the Department of Education concedes that student loan forgiveness under this plan is legally authorized.
Nevertheless, student loan forgiveness under IBR remains blocked following a department announcement in July. The department indicated that loan forgiveness is temporarily suspended under IBR 'while our systems are updated to accurately count months' that can qualify toward a borrower's IBR repayment term. But the department has provided no further details, including whether there will be an attempt to claw back previously-awarded loan forgiveness credit, or when student loan forgiveness under IBR will resume.
Student Loan Forgiveness Problems Mount For PSLF
IBR isn't the only program experiencing problems with student loan forgiveness. PSLF borrowers also face headwinds.
Many borrowers who have applied for PSLF Buyback, a program that allows for a lump-sum payment to cover periods of otherwise non-qualifying forbearance periods so that they can count toward student loan forgiveness, have been stuck in a massive and growing backlog. According to Department of Education data, Federal Student Aid staff have been successfully processing two to three thousand PSLF Buyback applications per month, but the application backlog has nevertheless skyrocketed from around 49,000 in April to more than 65,000 in June. Many borrowers have been waiting months for determinations.
Meanwhile, the Trump administration is moving forward with steps to impose new rules on the PSLF program that would restrict student loan forgiveness for entire organizations if they engage in what the administration refers to as 'substantial illegal activity.' Critics have argued that this loosely-defined term could be used to weaponize PSLF by punishing nonprofit organizations and Democratic state and local governments simply for engaging in activities that run afoul of Trump administration policy goals. The regulations are still under development and shouldn't be implemented until next summer; many observers expect there to be legal challenges.
Big Changes Coming To Student Loan Repayment Under Big, Beautiful Bill
As if these issues aren't enough, President Trump signed legislation passed by Congress in July that will make substantial changes to the federal student loan repayment system. These reforms may put additional strain on an already-buckling Department of Education, which was hit by mass layoffs earlier this spring that effectively cut the department's workforce in half and likely has contributed to the existing backlogs.
Under the student loan provisions of the so-called 'Big, Beautiful Bill,' IBR would be preserved for current borrowers. But the ICR, PAYE, and SAVE plans will all get phased out by July 2028, if not sooner. And any borrower who consolidate their federal student loans, or takes out a new federal loan, on or after July 1, 2026 would be cut off from IBR and would only be able to access the Repayment Assistance Plan, a new income-driven option that will force borrowers to remain in repayment for 30 years before they can qualify for student loan forgiveness. A major student loan advocacy organization has warned that RAP could be a debt trap for many borrowers.