Student Loan Borrowers Scramble to Pick New Repayment Plans

Millions of federal student loan borrowers are rushing to select new repayment plans under updated government rules. According to a report from The Hill on September 13th, borrowers on the discontinued Biden-era SAVE Plan must choose a new repayment plan within 90 days of notification, or they will be automatically transferred to an option with the highest increase in monthly payments.

Under the revised guidelines, borrowers who received loans after July 1 have only two options: the Repayment Assistance Plan (RAP), which caps payments at 10% of adjusted gross income, and the standard repayment plan. The first set of borrowers notified of the deadline must act before September 29th, with all SAVE borrowers receiving their 90-day deadline by the end of the year.

Although other repayment options are available for loans taken out before July 1, some of these plans will also expire in the future, with the Pay As You Earn and Income-Contingent Repayment options set to end in 2028. The most common complaint among borrowers, as shared by Natalia Abrams, president of the Student Debt Crisis Center, is the high cost of exiting the SAVE plan and the confusion surrounding the available options.

Some borrowers have not taken out loans prior to July 1 but can still apply for what are now referred to as legacy plans. The White House argues that the new borrowing caps and streamlined repayment plans will compel universities to reduce tuition costs, which currently average $90,000 per year. However, consumer advocates warn of potential default risks across the nation's $1.7 trillion student loan portfolio, where 9 million borrowers are already in default and 3 million are delinquent.

A PYMNTS Intelligence study found a mix of regret and determination among those who took on education debt, with 37% expressing remorse about their financial decisions related to education, yet 63% would still make the same choices despite the financial strain. The student loan changes come as consumers who struggle to make ends meet are facing mounting pressure, with many stating that there is nothing left to cut.

PYMNTS CEO Karen Webster noted in a recent column that many consumers feel they have exhausted all options for cutting expenses, leaving critical items like car payments, childcare, and rent as the last things they must consider reducing.