What you should know about your student loans

0:01NPR.

0:06Sierra Juarez:This is The Indicator from Planet Money. I'm Adrian Ma. After home and auto loans, student loans are the third largest category of debt that consumers hold. Now, the vast majority of these are issued through the federal government, and some 43 million people have federal student loan debt. So if this is you, or you're thinking about taking out a new loan, then July 1st is a date you should pay attention to, because big changes are coming to this very big program. It's huge, and it's huge because it's not one thing. It's not two things. It's, you know, I can name a dozen things off the top of my head, large and small, that are changing, that will affect, in all, probably most borrowers.

0:48Sierra Juarez:Corey Turner covers education for NPR. And some of them will be felled immediately, and others could end up changing the system considerably without anyone ever really noticing or understanding, huh, why did that happen? Yeah, why is this happening? And what do these changes mean for current and future borrowers? That is what we're talking about on today's show. After the break, we'll have a conversation with Corey about the biggest overhaul to the federal student loan system in decades.

1:24Sierra Juarez:This message comes from Angie. Tackling a home project, Angie can connect you with pros who do such a good job, you might ask them to be your kid's godfather. Don't do that. Just trust them to get the job done. Find a pro for your projects at Angie.com. That's A-N-G-I dot com. Support for NPR comes from IBM. On Smart Talks with IBM, Malcolm Gladwell explores how organizations are using technology to solve complex challenges. I spoke with Sergi Ghosh, Heineken's chief AI officer. If you can connect all the different applications, all the platforms, remove fragmentation, scale very quick, that's what we call the best connected drawer.

2:08Sierra Juarez:That's where IBM is really partnering with us. Listen to Smart Talks with IBM wherever you get your podcasts. Support for NPR and the following message come from Washington Wise. Decisions made in Washington can affect your portfolio every day. Washington Wise from Charles Schwab is an original podcast that unpacks the stories making news in Washington. Listen at schwab.com slash Washington Wise. About a year ago, Republicans in Congress passed a sprawling piece of legislation, the so-called One Big Beautiful Bill Act. And among its many provisions, a major overhaul of the federal student loan programs.

2:47Sierra Juarez:NPR's Cory Turner says these changes, which go into effect this week, will affect just about everyone who has a student loan or is thinking about getting one. Let me just tick through the biggest ones in my mind. So, number one, we know there's still roughly 7 million borrowers in the Biden-era repayment plan known as SAVE. Right. This was a Biden administration program that launched in 2023. But then some Republican-led states, they filed a lawsuit against it, arguing that it was federal overreach and it would cost taxpayers in the long run. And so it got tied up in the courts. And now save is over.

3:23And so those borrowers starting July 1st, they need to choose a new repayment plan. And if they don't do that within roughly 90 days, they're going to be put into the least generous, least flexible repayment plan. Also, July 1st, they're essentially, for new borrowers, phasing out all of the other old repayment plans. They're creating two new repayment plans. One is essentially a new and improved standard plan, where basically your monthly payment is the same month after month, year after year. And then the other plan is based on your income. So the less you make, the less you pay. Also, anyone looking to take out graduate student loans, a huge change.

4:08Now, unless they're pursuing a medical degree or studying clinical psychology or dentistry, they're going to be capped at$20 ,500 a year. That's a pretty severe limit compared to unlimited borrowing of recent years.

4:24Sierra Juarez:So what are these changes ultimately aimed at accomplishing? Oh, there are a couple different answers here, Adrian. Number one, let's just be honest, the bill needed to save money because it was an enormous— The one big beautiful bill. Yeah, it was an enormous tax bill. Right, expected to cost trillions of dollars over the next decade or so. That's right. And one of the ways to just get the math to math was to cap graduate student loans. But there are also other reasons at play here. If you look at, say, the income-driven plan, the new one, the repayment assistance plan, monthly payments on that plan compared to past income-driven plans, they're going to be higher.

5:05And a part of the purpose here from Republicans really is to jumpstart federal student loan repayment, to try to get the system back on the rails. The COVID pandemic really devastated our student loan infrastructure. Everything just ground to a halt and it stayed there.

5:25Sierra Juarez:Well, part of that was a way of, I guess, trying to ease the burden for some people during the pandemic is to say, like, we're not going to be collecting on student loans for a while. That's right. But what happened was we never really eased people back into it because the Biden administration's signature effort at trying to do that was the save repayment plan. and 8 million people signed up for it. And then lawsuits essentially froze the plan in its tracks. And that meant borrowers didn't have to make payments. And so part, I think, of the point of this July 1st reset is the Ed Department is pouring a ton of resources into trying to get borrowers back into the habit and frankly, repaying their federal student loans.

6:13Sierra Juarez:So what is the expected impact for the borrowers going to be of this? Is this expected to make it easier for them to keep up with their loans or harder? I think with Republicans' repayment assistance plan, it's not a draconian plan compared to the Biden era save plan, but it is less flexible and it will be less generous. Monthly payments will be higher. It's no secret that right now we're in a pretty precarious spot with the federal student loan program with 12 million borrowers either in default or quickly sliding in that direction. And nobody, regardless of the D or the R behind their name, nobody wants to see more defaults in the program.

7:02Default doesn't help anybody. It doesn't help the government. And it really doesn't help borrowers. And so I think what you're seeing July 1st is the administration and Republicans' best efforts to try to meet borrowers where they are and get them back into repayment.

7:23Sierra Juarez:What about student loan forgiveness programs? Is anything happening with those? All right. So I'm going to get a little nerdy here, Adrian. Number one. Please. We love it. We love nerdy. The program, public service loan forgiveness, which is essentially a quid pro quo with the government. You work for 10 years as a nurse, a firefighter, police officer, teacher, And after 10 years and 120 monthly payments towards your loans, you get the rest forgiven. That program remains. It is intact. It is still available. Other forms of forgiveness, though, traditionally have come at the end of a term embedded in an income-driven repayment plan.

8:03So after 20 years or 25 years of payments, those are changing a bit. The brand new Republican income-based plan called the Repayment Assistance Plan, it stretches that window to 30 years. And everybody I've talked to who knows a thing about student loan math says, hardly anyone is going to qualify for any kind of forgiveness on this plan because you will have paid off your debts before you reach 30 years. So that's a problem for newer borrowers. That's the only income plan they'll qualify for.

8:34Sierra Juarez:But is there any sense of what that will mean for borrowers then? Will we see more borrowers in default or fewer people taking out federal loans? Oh, those are the million dollar questions, Adrian. Again, there are some 7 million borrowers who are still enrolled in the Biden era save plan. They need to change plans. And it's a huge question. Will they all enroll in a new plan? if they don't and they're automatically put in the standard plan, will they actually begin repaying loans or will we just see defaults skyrocket? It's possible. And I'd be lying if I told you I knew what was going to happen.

9:11I do think overall, we've spent a really long time now, what, six, seven years focused on student loan forgiveness, on helping borrowers bear the burden of rising college costs. And I think that conversation, that political conversation anyway, ended with the Biden administration. And I think that requires a sort of mental reset for borrowers too, who are going to have to come to grips with the fact that in spite of years of talk about loan forgiveness, they're going to have to get back to the business or start, for the first time ever, repaying their loans.

9:52Sierra Juarez:Corey Turner is a correspondent and senior editor for NPR's Education Desk. If you want to know more information about how these loans can specifically affect you, he's written a really helpful guide on NPR.org. We'll drop a link to that in the show notes. And if you can't get enough Corey, listen to Planet Money this week. He and the Planet Money crew look into whether making student loans less generous could actually bring down the cost of school. This episode was produced by Corian Bridges with engineering by Travis Hagan. It was fact-checked by Sarah Juarez. Kankin Cannon is our editor, and the indicators are production of NPR.

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