The new reality for student loan borrowers

0:07Nearly 43 million Americans have federal student loan debt totaling more than$1.8 trillion dollars combined. That's according to the Education Data Initiative. And now the federal student loan system is facing significant changes under the Trump administration. One of the biggest changes is the end of the Saving on a Valuable Education or SAVE plan started by President Biden in 2023. The income-driven program offers low monthly payments and an expedited path to loan forgiveness. Republicans challenged the plan in court, where it's still tied up, leaving the 7.7 million people enrolled in the program in limbo.

0:44There's also changes to loan repayment options and new caps on borrowing next year. How is President Trump overhauling the federal student loan system? And what does this mean for the tens of millions of current and future borrowers? We get into it after the break. I'm Jen White. You're listening to the 1A Podcast. Stay with us. We've got a lot to get to.

1:08Let's meet our panel. Joining us now is Michelle Singletary. She's a personal finance columnist at The Washington Post. Michelle, it's always great to have you. Oh, good to be back. Thank you. Also with us is Danielle Douglas-Gabriel. She's a national higher education reporter covering the economics of higher education for The Washington Post. Danielle, welcome back. Thanks for having me back. And Catherine Lucas-McKay. They're an associate director at the Aspen Institute's financial security program, where they lead research on topics like consumer debt and student loans. Catherine, welcome to 1A.

1:39Hi, thanks for having me. Let's start with a message we got from one of you. I'm calling from St. Louis, and it's on the student loan program. And specifically, I've got three complaints or observations. One is on the SAVE program. I realize it's in court adjudication right now, but the department needs to make a good faith effort to adhere to the terms and conditions that it represented previously. Secondly, the PSLF program, that seems to be a little bit of also with some question marks on it. And last but not least is the interest rate. Thanks for that message. And the PSFL is the Public Service Loan Forgiveness Program.

2:19So, Catherine, let's start with changes to federal student loans included in President Trump's recent reconciliation bill. What changes does this legislation make to the federal loan system? This is really a transformation of the federal loan system in a way that we have not seen or experienced since the system was federalized back in the days of the Great Recession. Undergraduates will not see as many changes, but parents who borrow to support their undergraduate students' educations will face new, much lower limits on how much they can borrow per student per year and over their own aggregate lifetime.

3:00And they also will have fewer repayment options. The changes for graduate students are much more drastic. The type of loan that people who attended a master's program in the past 20 years or so, the graduate plus loan, has been eliminated. That's the type of loan that people took out for their living expenses above the cost of tuition and fees. The remaining loan program for graduate students for tuition and fees also has a lower annual and lifetime limit in ways that will deeply affect graduate school enrollment and particularly enrollment in the more expensive, longer programs like medical and dental school and law school.

3:47For those of us who have student loans and are in repayment, there are big changes coming to the plans that we're enrolled in, how those plans work, what our monthly payments are. The caller mentioned the SAVE plan. That plan was developed under the Biden administration. It was going to be a way to lower monthly payments for a lot of borrowers and also address one of the long-running problems with the student loan portfolio, which is if you had an income-driven repayment plan and your monthly payment amount was less than the interest that was accruing on your loan balance, you could pay your loans on time every month and still see your balance go up as that interest remained on your account and got capitalized in.

4:34Well, Michelle, I want to bring you in here because roughly 7.7 million people are currently enrolled in the safe plan. And while the program's being challenged in court by Republicans, those borrowers have been put on an interest-free forbearance since last summer, which has postponed their payments. But what other options do these borrowers have right now? Well, it's going to go away. So they need to start talking to their loan servicer to see how the other, either the standard plan, which many of them probably can't afford, or the new plan, which they're calling, what is it, WRAP, which is kind of an interesting name.

5:08So they're going to have to start talking to their servicers to figure out what's best for them. If you make more money, your payment is going to go up. You just need to understand that. And now is the time to sort of figure out what that payment is and how to incorporate it into your budget. Danielle, in terms of the legal fight over the save plan, where does that stand right now? So both of the lawsuits are still in play. And in both instances, the judges have given both parties a bit more time to negotiate a settlement of terms. I think it is entirely possible that one could be resolved and SAFE could go away for current borrowers faster than the law requires.

5:48Just to be clear, borrowers on SAFE have until 2028 to migrate out and transition out of that plan. But if one of the lawsuits were settled earlier and it completely abolished the plan, then it could go away faster. And that becomes of complication, which is why I think the department and the states are trying to negotiate a way that we don't create more havoc in the system at this stage. So for borrowers who are looking to transition out of the safe plan, Danielle, are there other income-driven repayment plans they can try? Yes. I mean, the other three plans are still in existence. I think many people I've spoken to have said one of the best options for borrowers would probably be income-based repayment, one of the older income-driven plans.

6:33You can switch into that plan. And the benefit of switching now is borrowers can still get credit towards loan forgiveness under an income-driven repayment plan if they were to switch into IBR. But remaining on save, you're not getting credit for that time. The other benefit is that in addition to the two new plans that are created through the one big beautiful bill, there is an option for current borrowers. You can transition into that same IBR plan and remain there, which could be more beneficial for some folks, especially potentially for parents, right? So unfortunately, parents are not eligible for RAP.

7:12But if they were to consolidate and switch into what's known as income contingent repayment, they would be transitioned to that IBR payment, which would give them an option for an affordable income-driven plan once the plans go away next year? Well, here's another message we got. My question politely is, what the heck is happening? I've been out of grad school since 2009, working both in teaching, then for the Red Cross, and then in private industry and healthcare. I don't have solid information on how to repay my loans on the income-based plan I signed up for in 2009. The repayment plan I signed up for was being considered by the Supreme Court, but now it's not an option.

7:51I think one of the messages we get a lot from listeners is that it's difficult to find information or to get in contact with a person who can walk them through this process. Catherine, any guidance for where people can turn to try to understand what's going on with their repayment options? The first place to go is to talk to your servicer. They are there to be very clear about this is the plan that you're in, this is your monthly payment. Here are the forms that you have to fill out to be in this program, and here's the next time you'll need to fill out those forms. Right now, people are experiencing kind of long waits to talk to servicers because you have so many millions of people needing to switch plans, calling to get clarity themselves, but that is a good first stop.

8:35And then also looking at resources from student loan advocacy groups that are providing links to casework help from your members of Congress. Like if you get really, really stuck and can't get answers, that's a good escalation step. But start with your servicer. Well, we got this from Edgar who says, I'm an attorney and I owe around$260 ,000 in student debt. I wanted to serve my 10 years for loan forgiveness. I've completed four years so far. I worry about whether to stay on the loan forgiveness track or switch to income repayment plans and go to the private sector. Any guidance, Michelle, your thoughts?

9:14I think for right now, he should stay on the public loan service forgiveness program. There weren't any major change. There was, people were worried that it was going to change drastically, but there wasn't. And so he's on track. Stay on that now. Make sure to talk to the servicers so that if he has to switch to the new income-based plan, which was called RAP repayment assistance plan, that he's in the plan that will continue to contribute to that 10-year forgiveness. Now, Danielle, last month, the Department of Education said it would start applying interest to loans held by save borrowers on August 1st.

9:52Has that happened? Yes, it has. So interest has resumed. Just to be clear, people can remain in that forbearance. That means that you are allowed to postpone your payments under that particular the forbearance. However, it's no longer an interest-free subsidy. Interest will start accruing again, which I get the sense that was to try to encourage borrowers to start making a decision. There has been questions, I think, and that was what the caller had referenced, about whether or not that adheres to the terms that the department initially set out for safe borrowers. Let's take a quick pause here.

10:27We'll be back with more of the conversation in a moment. Stay with us.

10:35This is 1A. I'm Jen White. We're discussing the state of federal student loans under the Trump administration and what borrowers can expect as we enter the new school year. We got this question from Moses who says, will forgiveness after 25 or 30 years of payment still be in effect? Danielle, what do we know? Yes, under the RAP plan, you can receive forgiveness after 30 years of payment. that's still in effect. Under IBR, which is what current borrowers can transition into, it's under by 25 years. So that is still on the table. I think the challenge is with this new plan, it'll take longer to receive forgiveness, and you're likely to have paid off your loan before you hit that marker.

11:19We also got this from Beth, who says, I'm on disability through my former employer, not the government. My condition will not change and I am not and will not be able to work. My federal student loans were forgiven due to my disability. Should I be concerned about any possible changes? Catherine? If someone's loans were discharged already due to disability, they are pretty safe. They should not be too worried about the possibility of those loans coming back. The changes in the July tax bill did not address that. They don't change how that works. And in general, once loans have been discharged, it's not common for the federal government to try to reinstate them for people.

12:02Well, Dani asks this. I don't necessarily believe that we should be forgiving everyone's loans. I'm committed to paying them back. But why can't borrowers refinance their interest down to a manageable number? And wouldn't it benefit the government to just potentially waive the interest altogether so the students can actually afford to pay back their loans? Michelle, your thoughts? You know, lots of people talk about that a lot. And I understand that. But there are situations where people didn't get the job they wanted, or they had some health crisis where they can't cover all of the loans. And so that's where the forgiveness comes in.

12:37And I think we should give some people grace. But it is true that some people could be paying back their loans. They put it in forbearance. Like, you know, we heard earlier a person who, you know, and I understand single parent trying to make it. But when you let those loans just sit there and that interest capitalized, that's how it grows. And I think there are some parts of the new law, as it addresses student loans, that I actually like. Under the RAP program, as with SAVE, if you don't make a payment that covers your interest, the government will waive that interest. And that's a good thing.

13:12So that if your monthly payment doesn't cover everything, you're not growing that loan. And I think that will help a great number of people because, you know, life happens. And sometimes you can't cover all of those loan payments that you have to pay back. Well, and Danny specifically asked about why borrowers can't refinance their interest down to a manageable number. Is that an option, Michelle? Well, you can definitely go. There's some consolidation plans that you can go into, but oftentimes that aggregates so you don't actually get a little break. That's a policy decision that the government and the Congress, people have been asking Congress to look at that forever, especially when interest rates go down.

13:54People are locked into these high rates. And so, you know, that's how you vote. You vote for people who are going to put into place policies that will help you with these student loans. Let's go to our voicemail box. Here's another message we got about the public service loan forgiveness program. When payments are required to start again in November, I believe, how will they calculate how much I pay? I was paying under the SAVE program before and it was affordable enough for me to handle. At this point, I don't know how much they're going to ask and I don't know how they're calculating that. And that's a really scary thing with that just a few months away.

14:33Catherine, any guidance? Yeah, the way that they'll calculate it It is based on the rules in the particular loan repayment program that you opt into. We know that the terms on the income-based repayment plan are not changing in the short term. If you were ever making payments under the SAVE plan, your payments under the income-based repayment option will probably be a little bit higher. It was designed, SAVE was designed to lower monthly bills. But then come 2028, when everyone is transitioned either into the new repayment assistance plan or the standard plan, then there will be two different formulas.

15:18So a little bit of a double transition in the short term. The formulas are really clear. They're available online. And it's just they're not going to change until the point where those plans sunset. And then there'll be new ones. All right, let's go back to our voicemail. I'm a 68-year-old still working. I have federal Stafford loans. My loans were originally$90 ,000 and now they're$152 ,000. $95 ,000 is unsubsidized and$57 ,000 is subsidized. I'm in an income-based repayment plan and I've been making payments since 2014. I just want to know what I can do. What are my options? Danielle, I'll come to you first.

15:59it probably would be best to stay in that income-based repayment plan honestly and to continue to pay out the terms as long as that remains affordable because folks who are in that plan will transition after 2028 they will stay they can stay in that IBR plan so if it's affordable probably best to stick with it and if she's working towards loan forgiveness that is probably one of her better options as well, unless after running the numbers, the RAP plan looks more advantageous. Michelle, I want to come to you here because I couldn't help but note the age of this caller, 68 years old, past the time when many people at least want to consider retirement.

16:41Anything you'd add? My heart breaks for people in this situation, and it might be loans for themselves or for their children. As Danielle said, just look at each plan, figure out which one is more affordable. I will say under the new plan, if her monthly payments don't cover interest, it will waive that and it won't grow that even more. So that even though the payment might be a little bit higher, she might want to look into that so that the balance doesn't keep growing if She's not making enough payments on the old plan to cover her full payment. But I think there's not much I can tell this person because they're already in a situation.

17:22I think this should be a lesson for people who are listening, who are about to send their children off to school, that please you all. Be careful about the loans that you're taking out. We heard the message. Go to college so that you can lift your life up. Go into middle class tests. But be very careful about taking on loans. And if you can avoid it, please don't do it. You hear this, the 60-year-old person, with almost 150 ,000 student loans, don't put yourself or your children in that position. So maybe they go to community college for two years and then transfer to a four-year university. They don't stay on campus.

18:00I know it's going to be a different kind of educational life that you may expect for yourself or your child, but listen to these stories and take it to heart, particularly as we heard, inflation might be ticking up. Who knows if we're going to have a recession because of the tariffs? Make this a cautionary tale. Not much we can do for this person, and I hate to say that, but we can help others make a better decision about how they're going to send their kids to college, or if you are listening, hopefully you're a young person listening, to not do it. Please just don't do it. Well, we got this from Ashley who says, how will the upcoming changes affect us with higher paying jobs, but who have significantly higher student loan debt.

18:39I'm a pediatrician, but with significant loan debt over$400 ,000. I do not make enough to afford payments and live comfortably under standard payments. I also will not be eligible for public service loan forgiveness programs because I'm in the private sector. I'm currently on save and have been making payments, but these will not even cover interest now. What plan do you think would be best to transition to? Catherine, your advice? The last bit of that message is really the key, that the loan payments will not even cover the interest accrual. That says that getting into the new repayment assistance plan as soon as it opens is going to be the best move for her.

19:20As folks have mentioned, that plan is going to be the first one that, you know, hopefully will stay in effect for more than just the couple of months that SAVE was in effect, where people's interest will be waived. Any unpaid interest after paying their monthly bill will be waived. And that will come with a higher monthly payment for higher earning borrowers. That's an unfortunate reality that millions of people are facing and need to figure out. But the relief that comes with not seeing that interest get capitalized and your balance grow and grow while you make payments is enormous. And it really does help with a timeline for forgiveness.

19:59especially if you're not able to do PSLF. We got this from Jen, who says, my daughter needs a loan for the upcoming school year. We don't understand what is available and the pros and cons of each type of loan. Can someone tell us the absolute fundamentals as a new borrower? Where do we start? Now, Michelle, I know you just said, if you can avoid it, don't take out loans. But if for whatever reason, that's still an option on the table, your best advice? I would look at if you have to take out a loan look at if this person is local maybe they're in a state school perhaps only take out enough to cover you know they come home don't be on the campus and do just tuition and fees if they're already in out of state school.

20:44So, y 'all, I don't, I mean, we're not, I can't wave a magic wand and tell you what to do about this. I would, this is, they're not going to want to hear this, but I would think seriously about transferring into a school that you can afford. And I've advised couples to do that. They have pulled their children out and brought them home or put them in community college. And this goes back to the doctor. In his message, he said, a comfortable living. Well, you might have to change what that definition of comfortable living is. You make a doctor's salary and you sort of live a doctor's life, and that might not be what you can do with over$400 ,000 in loans.

21:26So for the person trying to figure out the best loan option for their child, your advice is still, if possible, avoid taking out the loan. Or reduce the amount. So, you know, if they are out of state, it's a little bit more difficult because they have to pay for housing. But, you know, look for situations where you can maybe do more roommates. Maybe instead of one roommate, they do three roommates. You know, you have to look at how can I reduce the expenses so that I can take out less. But going forward, there's going to be two, you know, after July of 2026, two plans, the standard plan and the RAP plan.

22:05And so in their case, once they take out the loans and the student finishes, then they would look at the payment plan that may be based on their income. So you're looking down the road in terms of how to repay that loan. But let's try to reduce how much you need to take out. Before we go any deeper into this conversation, I want to get to this message we got from Sandy, who writes, I'm a frequent listener of NPR. However, I find today's program on student loans to be out of touch with the reality that millions of borrowers are facing. The Department of Education is deliberately delaying updates to student loan repayment plans.

22:38On your program, it was suggested the borrower simply contact their loan servicers to make changes. For millions of us, that has been impossible. I am a teacher on PSLF, but I was deemed ineligible in October because I was on the save plan. Despite repeated calls to my servicer and multiple inquiries made by my state representative on my behalf, there has been no progress on my account. I would love to get each of your responses to that message. Danielle, I'll come to you first. So yeah, there is a backlog of applications for IDR plans. There is also a lot of confusion for a lot of public service loan forgiveness borrowers because of what's happening with the lawsuit and how the department is interpreting the injunction that was placed in the main case in play.

23:23And one of the things that folks on public service loan forgiveness can do is do what's called a buyback. You can buy back the time that you spent on the safe forbearance. So make sure that it counts towards loan forgiveness. Now, that can be an expensive option for a lot of folks who don't have the money to afford to do that. But that is still an option. But yes, the caller's right. This is not a simple path forward for borrowers. It is extremely complicated in part because of this injunction and the way that it's being interpreted and the way that it's playing out. But I will say for folks who feel a little bit stuck right now, I think there will be clarity in the coming months because of the law that has passed, whether or not you agree with it.

24:08But it does transition out, save. And then also, I think the department is starting to slowly get through that backlog of applications for folks who wanted to switch into another plan. So there should be a little bit more resolution there as well. Let's take a quick pause here. We'll be back with more of the conversation in a moment. Stay with us.

24:31Well, President Trump has effectively gutted the Department of Education, firing almost 1 ,400 employees at the agency this year. And the chaos around this transition is affecting some of you. Sarah says, my credit plummeted more than 100 points because of a missed payment I didn't even know had restarted with all the confusion about the loans. I've heard of other friends in the same boat. Is there any way to fight this, Michelle? Well, no, but you can make sure you stay on top of things. And I understand people's frustration, but don't direct it at us. We're just telling you what's going on. I mean, we can tell you to call your loan service or what else can we do?

25:11Because that's your point of contact. But for right now, I would say be laser focused on your credit report and payments that are due. And while this thing is shaking out, if you can make the payments that you are required to, even if under a different plan, it might be something different. So you want to stay current. The good news about credit reports and credit history is the moment you start to make on-time payments and you get past that late payment, your credit score will go up. It's not a life sentence when your credit score goes down. So once this all shakes out, and hopefully it will in the next couple of months, and you know the plan that you're on, you know your payment, you start making those payments on time, in a couple of months you'll see your credit score go up.