Latest news with #repaymentplan
Forbes
11-08-2025
- Business
- Forbes
Trump's New Student Loan Plan Is A Debt Trap, Warns Group
The Trump administration will be launching a new student loan repayment plan in the coming months. The new option is intended to replace several older programs that have allowed borrowers repay their student loans based on their income, with eventual student loan forgiveness after years in repayment. But one borrower advocacy organization is warning that the new plan is akin to a debt trap. The Repayment Assistance Plan, or RAP, is being created under the 'Big, Beautiful Bill' that President Donald Trump signed into law in July. Under the bill, the Department of Education will phase out three popular income-driven repayment plans (ICR, PAYE, and SAVE) by 2028. The Income-Based Repayment plan, or IBR, would be preserved for current borrowers. Current borrowers would also have the choice to enroll in RAP, once the plan becomes available. But anyone who consolidates their student loans through the federal Direct loan program on or after July 1, 2026, or takes out a new federal student loan on or after that date, would only be eligible for RAP or a Standard plan (which isn't based on a borrower's income). Here's what student loan borrowers should know about RAP, and why one advocacy group is sounding the alarm. How RAP Works For Student Loan Borrowers RAP is an income-driven repayment plan that, at least at a very basic level, functions similarly to other existing income-driven plans like ICR, IBR, PAYE, and SAVE. RAP uses a formula applied to a borrower's income (typically their Adjusted Gross Income from their federal tax return), which calculates monthly payments for a 12-month period. Borrowers must then update their income information every year, which results in adjustments to their monthly payment amount for the next 12 months. After a fixed term, if the borrower hasn't paid off their loans in full, they would be entitled to student loan forgiveness for any remaining balance. But that's roughly where the similarities end. RAP differs from other income-driven repayment plans in several key ways. First, in addition to having higher monthly payments than SAVE, RAP uses a complicated tiered repayment formula where the percentage of income that is counted toward a borrower's monthly payment increases for every $10,000 in additional income earned by the borrower, up to $100,000; the other existing IDR plans use a fixed repayment formula. In addition, the RAP formula is not indexed to inflation, unlike the current income-driven options which factor in an income exclusion amount tied to the federal poverty limit (which tends to increase as wages rise). RAP also has a minimum required monthly payment amount, even if a borrower has no income at all. In contrast, ICR, IBR, PAYE, and SAVE have a safe harbor that allows for monthly payments of $0 if a borrower has little or no income. Moreover, RAP has a much more restrictive definition of family size as compared to the existing income-driven options. While ICR, IBR, PAYE, and SAVE factor in the borrower's spouse, children, and other family members who live with the borrower and receive at least half of their financial support from the borrower, resulting in lower payments, RAP only provides for a flat $50 monthly payment reduction for each dependent child. Borrowers can't reduce their payments further, even if they are full-time caretakers for other family members. And finally, RAP has a longer repayment term before a borrower can qualify for student loan forgiveness compared to existing income-driven repayment plans. While the current IDR options all allow for student loan forgiveness after 20 or 25 years in repayment, RAP keeps borrowers in debt for 30 years before they can qualify for a discharge. Group Warns RAP Is a Trap For Student Loan Borrowers A major student loan borrower advocacy organization is warning that RAP's repayment formula and extended repayment term could push many borrowers into default, effectively trapping them in debt. 'The plan departs radically from the core design tenets of all previous income-based repayment plans,' said The Institute For College Access and Success in a recent blog post. 'One stark difference is that it removes the 'income protection' that all prior plans have, which is meant to 'protect' a certain amount of a borrower's income so they can stay current on their loan payment while still having enough funds to cover their basic needs. RAP scraps this approach and instead bases a borrower's payment on their gross income, rather than their discretionary income. Unlike all existing income-based plans—which require monthly payments only once a borrower's income is a certain amount above the federal poverty threshold—RAP will require payments from even those earning far below the poverty level." Because the repayment formula for RAP is not tied to inflation, more student loan borrowers will be pushed into the more expensive repayment brackets under RAP as wages rise over time. This will also push more borrowers into default, warns TICAS. 'As living costs continue to rise and families struggle to keep up, making payments less affordable undermines the primary goal of income-based plans: to keep borrowers in good standing,' said TICAS in its blog post. 'However, it will likely do the opposite: push more borrowers than ever into the nightmarish world of loan default.' TICAS characterized RAP has taking 'a never-before-seen approach to calculating a borrower's monthly income-based payment.' The plan 'will no longer set aside a certain percentage of a borrower's income' that won't be factored into their monthly repayment calculation. 'Instead, it will base a borrower's payment on their full income (AGI), increase the size of the payment as their income increases,' and then 'then layer on a flat reduction of $50 a month per dependent child,' which is far less generous than existing income-driven repayment plan options. TICAS also noted that the tiered repayment formula under RAP (which increases the percentage of income that must be dedicated toward a student loan payment for every additional $10,000 earned) will, in some cases, result in sharp increases in monthly payments following relatively small increases in earnings. TICAS also warned that RAP's longer repayment term requiring 30 years of payments before a borrower can qualify for student loan forgiveness is problematic. The group noted that prior analysis has shown that the longer a borrower remains in a repayment system, the likelier it becomes that they will eventually fall out of that plan and wind up going into default. This could be because of unexpected changes to their life or financial circumstances, problems associated with loan servicing or transfers, and policy changes that occur as presidential administrations change. 'All told, the RAP proposal is not much of a safety net,' said TICAS. 'When it's the only thing standing between borrowers and loan default, we can expect many more borrowers to enter the draconian student loan collections system, in which many will be trapped.' What Student Loan Borrowers Should Know About RAP Rollout Republican lawmakers who supported the legislation that created RAP have argued that the reforms will help student loan borrowers and American taxpayers. 'The student loan repayment process has become bloated and too complex,' said Education and Workforce Committee Chairman Tim Walberg (R-MI) in a statement last month. 'The plan simplifies the loan repayment system to help troubled borrowers repay loans without saddling taxpayers with the burden of paying back the loans of wealthy borrowers.' Ultimately, despite TICAS's warnings, many student loan borrowers will have no choice but to enroll in RAP in the coming months and years. Current borrowers enrolled in ICR, PAYE, and SAVE will need to select a different repayment plan once these programs are phased out by July 2028, and their only choices will be either IBR or RAP. In many cases, RAP will be more affordable than IBR, even as their payments will increase compared to PAYE or SAVE. Higher IBR payments will push many current borrowers to select RAP, particularly those who are on tight budgets or are pursuing student loan forgiveness programs such as Public Service Loan Forgiveness (RAP is a qualifying repayment plan for PSLF). And for PSLF borrowers, the longer repayment term associated with RAP may be less of a concern, given that PSLF allows for loan forgiveness in as little as 10 years. Meanwhile, any borrower who consolidates their student loans on or after July 1, 2026, or takes out a new student loan on or after that date, will not be eligible for IBR. With ICR, PAYE, and SAVE subsequently phased out by 2028, these borrowers will have no choice but to select RAP if they cannot afford payments under a Standard repayment plan or are pursuing student loan forgiveness through PSLF. So one way or another, many borrowers are likely to enroll in RAP in the coming years. RAP is not available yet to student loan borrowers, as the Department of Education must first draft regulations to implement the associated provisions of the Big, Beautiful Bill. Most observers expect RAP to formally launch no later than July 2026, given that new student loans disbursed during that month will only be eligible for RAP for borrowers who want to enroll in income-driven repayment or pursue student loan forgiveness.
The Guardian
09-08-2025
- Business
- The Guardian
People in the US: have you been affected by interest resuming on student loan debt under the Save plan?
Under the Biden administration, about 8 million people enrolled in a 2023 income-driven repayment plan for student debt – the Saving on a Valuable Education (Save) plan. But as of 1 August, the Trump administration has resumed charging loan interest under the Save plan to borrowers, who have been in forbearance since last year. The Department of Education has recommended people switch to another repayment plan for their federal student loans. Borrowers can still forgo payments, but will see interest accruing on their loans and won't make any progress toward student loan forgiveness. We want to hear from you. Are you a US borrower who enrolled in the Save plan? What do you plan to do now that interest is again being charged? Will you be forced to make changes to your spending habits in order to make new payments? How will this affect you? You can tell us how you've been affected by filling in the form below. Please include as much detail as possible. Please include as much detail as possible. Please include as much detail as possible. Please note, the maximum file size is 5.7 MB. Your contact details are helpful so we can contact you for more information. They will only be seen by the Guardian. Your contact details are helpful so we can contact you for more information. They will only be seen by the Guardian. If you include other people's names please ask them first. Contact us on WhatsApp or Signal at +447766780300. For more information, please see our guidance on contacting us via WhatsApp, For true anonymity please use our SecureDrop service instead. If you're having trouble using the form click here. Read terms of service here and privacy policy here.
The Guardian
09-08-2025
- Business
- The Guardian
People in the US: have you been affected by interest resuming on student loan debt under the Save plan?
Under the Biden administration, about 8 million people enrolled in a 2023 income-driven repayment plan for student debt – the Saving on a Valuable Education (Save) plan. But as of 1 August, the Trump administration has resumed charging loan interest under the Save plan to borrowers, who have been in forbearance since last year. The Department of Education has recommended people switch to another repayment plan for their federal student loans. Borrowers can still forgo payments, but will see interest accruing on their loans and won't make any progress toward student loan forgiveness. We want to hear from you. Are you a US borrower who enrolled in the Save plan? What do you plan to do now that interest is again being charged? Will you be forced to make changes to your spending habits in order to make new payments? How will this affect you? You can tell us how you've been affected by filling in the form below. Please include as much detail as possible. Please include as much detail as possible. Please include as much detail as possible. Please note, the maximum file size is 5.7 MB. Your contact details are helpful so we can contact you for more information. They will only be seen by the Guardian. Your contact details are helpful so we can contact you for more information. They will only be seen by the Guardian. If you include other people's names please ask them first. Contact us on WhatsApp or Signal at +447766780300. For more information, please see our guidance on contacting us via WhatsApp, For true anonymity please use our SecureDrop service instead. If you're having trouble using the form click here. Read terms of service here and privacy policy here.
CBS News
23-07-2025
- Business
- CBS News
Student loan forgiveness in the IBR plan is paused, Education Department says. Here's what to know.
Millions of people with student loans who are enrolled in a popular repayment plan are now in limbo, with the Department of Education saying it has temporarily paused forgiveness for borrowers in its income-based repayment plan, or IBR. Such plans offer a double benefit for borrowers by lowering a person's monthly loan repayment to reflect their income, while also promising to provide forgiveness after a number of years. Specifically, the government can cancel the balance of student loan after people have made payments for at least 20 years. About 40% of the roughly 33 million people repaying student loans were enrolled in one of the Education Department's four such repayment plans at the end of 2024, according to data from the National Student Loan Data System and the Government Accountability Office. But three of those programs had previously been halted by a court ruling, while forgiveness for the roughly 2 million people enrolled in the fourth — IBR — is now also paused. On Tuesday, Education Department deputy press secretary Ellen Keast told CBS MoneyWatch that the agency "has temporarily paused discharges for IBR borrowers in order to comply with ongoing court injunctions regarding the Biden Administration's illegal attempts at student loan forgiveness." The court injunctions stem from 2024 lawsuits related to the Biden administration's flagship student loan repayment plan, called the Saving on a Valuable Education, or SAVE, plan. That initiative, created to fix long-standing issues with the Education Department's previous income-based plans, proved popular with borrowers, with almost 8 million enrollees at the end of 2024, National Student Loan Data System data shows. Because the SAVE plan could count toward loan discharges in the IBR program, the Education Department is now temporarily halting forgiveness for enrollees in that plan. The Education Department said the loan discharges will resume at some point, but didn't provide a timeframe for when that might occur. Student loan forgiveness under three of the federal government's income-driven plans — SAVE; Income-Contingent Repayment (ICR); and Pay As You Earn (PAYE) — is currently paused after a court ruled last summer that Congress exceeded its authority in approving those plans. The legal action last year called into question whether student loan forgiveness was authorized under the federal statute that governs those plans. But the IBR plan was created under a different authority. The Education Department didn't specify a timeframe in its statement to CBS MoneyWatch. It noted that the SAVE plan allowed forbearances — when loan payments are temporarily halted or reduced — to be counted toward loan forgiveness, but that the rule was halted by the court ruling. Because of the injunction, the Education Department said it needs to recalculate how many payments made by borrowers should contribute toward repayment. "Legal IBR discharges will resume as soon as the Department is able to establish the correct payment count," said Keast of the Education Department. Yes. Borrowers in the federal IBR plan are eligible to have their student loans canceled after making payments for at least 20 years. However, some people eligible for such forgiveness have yet to see their loans canceled. They should continue making those payments, and the Education Department will eventually refund them, according to the agency. "For any borrower that makes a payment after the date of borrower eligibility, the Department will refund overpayments when the discharges resume," Keast said. Borrowers can also request forbearance from their loan servicer. In that case, interest would continue to accrue on any remaining Associated Press contributed to this report.
CNET
22-07-2025
- Business
- CNET
460,000 Student Loan Borrowers Seeking Lower Payments Will Be Denied. What to Do If You're One of Them
The Department of Education will deny nearly half a million student loan borrowers who applied for the lowest repayment plan based on their income. Getty Image/ Zooey Liao/ CNET Nearly half a million federal student loan borrowers who applied for lower monthly payments will be denied by the Department of Education. Based on internal documents obtained by Politico, the department is rejecting 460,000 student loan borrowers who selected the lowest payment option based on their income. For most applicants, that was the Saving for a Valuable Education repayment plan. SAVE was struck down by a federal court in February, so how were people still applying for the plan? It's likely the Education Department is still processing applications submitted before the Trump administration removed the SAVE plan as an option on Feb. 21, 2025, said student loan expert Mark Kantrowitz. As of June 30, the department reported 1.5 million pending applications for borrowers who are seeking Income-Driven Repayment plans. It processed 186,731 applications in June. The Department of Education did not immediately respond to a request for comment. Processing delays are the latest hurdle for student loan borrowers trying to navigate student loan repayment. Millions of SAVE borrowers' loans are currently in a general forbearance, with payments expected to remain on hold until mid-2026. However, the Department of Education announced this month that those loans will start accruing interest again on Aug. 1, so borrowers may be feeling pressured to choose another repayment program. If you've applied for a repayment plan, here's what you need to know about the status of your application and when you could start repayments. Read more: SAVE Student Loan Borrowers Have Less Than 2 Weeks Before Interest Restarts. Here's What to Do How can you find out the status of your loan and repayment plan request? If you applied for a new repayment plan and are denied, your loan processor should notify you when your application has been processed. You can also check the status of your plan request by logging into your account and going to the "My Activity" page. Your application should be listed as In Review, Action Required, Completed or Closed. Although the Federal Student Aid site says processing typically takes about 30 days, it notes you should expect delays due to the high volume of requests. What happens if I'm rejected for a repayment plan? If you applied for an income-driven repayment plan and were rejected, you may be placed in a standard 10-year repayment plan if you don't choose another repayment plan, Kantrowitz said. "That's typically what happens when a borrower is no longer eligible for an income-driven repayment plan." However, you can apply for another repayment plan at this time. The other repayment plans are also in a bit of transition since the passage of the Republican-led Big Beautiful Bill. Existing borrowers can still sign up for the Income-Based Repayment plan. Two other income-driven repayment plans, income-contingent and PAYE, are still options on the federal student loan site, but will be phased out. Existing borrowers will also have the option to enroll in the Repayment Assistance Plan, a new plan that was passed in the bill, but this option won't be available until next year. "The best option for most borrowers who were in the SAVE repayment plan is IBR, since IBR still qualifies for forgiveness, while ICR and PAYE do not," Kantrowitz said. "[Previous] payments made under SAVE, ICR, PAYE, REPAYE and IBR count toward IBR forgiveness." If you're a SAVE borrower who applies for a new repayment plan and it's held up by processing delays, your loans should remain in good standing while you're waiting. However, interest will start accruing next month, so you may consider making interest-only payments while waiting for your application to process.
