The Trump administration has announced a significant overhaul of the United States’ $1.6 trillion federal student loan system, a move that could impact millions of borrowers. To this end, the Biden administration’s new IDR measures intend to overhaul current IDR plans and fix eligibility for important forgiveness programs. Given that around 42 million Americans are currently in federal student loan debt, these changes are likely to affect many people.
The administration will begin taking steps to improve all IDR plans—especially Income-Based Repayment, Pay As You Earn, and Income-Contingent Repayment. The Education Department’s recent announcement of additional financial relief for borrowers comes none too soon. These plans will cap monthly payments at a percentage of discretionary income and will forgive any balance left after 20 or 25 years of regular payments.
In March, President Donald Trump finally took a big step in the right direction by signing an executive order. This executive order isn’t just about providing broad relief. Under the new guidelines, borrowers employed by organizations involved in certain types of work will no longer qualify for forgiveness. The PSLF program was originally created in 2007 during the administration of President George W. Bush. It provides for not-for-profit and government workers to forgive their federal student debt after 120 monthly payments (equal to ten years of payments).
Accordingly, legal challenges have arisen where litigants have targeted the administration’s approach to student loan forgiveness. In an unfortunate decision, the 8th U.S. Circuit Court of Appeals ruled against the U.S. This is similar to the lawsuit these states filed against the Saving on A Valuable Education (SAVE) plan. The plaintiffs’ lawsuit claims that President Biden was looking for a backdoor way to forgive student debt. This action followed the Court’s decision in June 2023 to strike down Biden’s larger loan cancellation initiatives.
SAVE included two critical provisions that drew legal scrutiny: it offered lower monthly payments compared to other federal repayment plans and provided expedited debt cancellation for those with smaller loan balances. The proposal has been on hold since last summer. A U.S. appeals court ruled in February that the rule should be blocked nationally, preventing its implementation. As it is, most borrowers who enrolled in SAVE are still in a temporary, interest-free forbearance.
The Trump administration just made short-sighted changes to some existing IDR plans. They claim that these changes are needed to implement a recent court decision about SAVE. Experts suggest that the administration is unlikely to defend SAVE in court or revise it further in its regulations.
Higher education expert Mark Kantrowitz noted that the administration is likely to make at least some of the temporary changes permanent.
“Not only will this rulemaking serve as an opportunity to identify and cut unnecessary red tape, but it will allow key stakeholders to offer suggestions to streamline and improve federal student aid programs,” – Acting Undersecretary of Education James Bergeron.
As of this month, the Biden administration announced that nearly 8 million borrowers have signed up for the new income-driven repayment plan, set to disburse in 2024. This shift indicates a growing interest in alternative repayment options, particularly among those struggling with financial burdens from student loans.
While the proposed changes aim to simplify student loan repayment options, they reflect ongoing political tensions surrounding education financing in the United States. The student forgiveness and repayment plan opposition debate is still very much alive, as everyone from lawmakers to special interest groups push for conflicting resolutions.