This piece is part of our Trump’s Beautiful Disaster series about the consequences of the mammoth budget law, one year later. You can see all stories in this piece here.
July 1 marked the beginning of two significant yet distinct shifts in student loan repayment. The first encompasses sweeping statutory changes to the federal student loan system that Congress set into motion when it passed Trump’s One Big Beautiful Bill Act last year. This structural overhaul involves consolidating many existing repayment plans into just two, markedly less affordable ones: the Repayment Assistance Plan and Tiered Standard Plan. It also imposes new borrowing caps, some of which are significantly lower than the average cost of particular degrees, and it eliminates Direct PLUS Loans, which have allowed graduate and professional students to borrow up to the full cost of attendance, “minus any estimated financial aid” they receive each academic year.
That’s only a taste of what’s in store for borrowers in the months and years to come, as even more statutory changes are set to take effect next year. Among them are new restrictions on future deferment and forbearance options, as well as revised loan rehabilitation rules. Borrowers facing financial hardship will have fewer avenues to temporarily pause payments, or to recover after a default. Consequently, those borrowers may have a harder time avoiding delinquency, not to mention the increasingly unscrupulous web of government contractors that come to collect on defaulted loans.
Read: Student debtors are under attack on all sides. Government contractors make their life miserable, and financial predators are poised to capitalize.“Taking money away from people that are right on the edge of financial destitution to repay a student loan… is just bad public policy,” Mike Pierce, executive director at Protect Borrowers, said in an interview. “It’s also bad for the student loan system and for the government because they’re going to spend money on private contractors chasing $10 payments from people that don’t have any money.”
The second shift is the sunset of the Biden-era Saving on a Valuable Education (SAVE) plan. With its generous terms and monthly payments as low as $0, the income-driven student loan repayment program was meant to build on the Biden administration’s efforts to “fix the broken student loan system,” one that has left countless borrowers stranded with debt they simply cannot afford. More than a dozen Republican-led states sued the then-president and his Education Department in a bid to strike it down. As my colleague David Dayen reported, a three-judge panel of the Eighth Circuit did just that in March—without any hearing on the merits of the program.
At the time of its inception, the SAVE plan replaced the Revised Pay As You Earn (REPAYE) plan. Many of the benefits available to borrowers enrolled in REPAYE were expanded by SAVE, but those benefits are few and far between under the Repayment Assistance Plan and the Tiered Standard Plan, as both generally require higher monthly payments. An estimated 7 million borrowers are enrolled in SAVE. Student loan servicers started notifying those borrowers this month that they will need to transition to one of the two new repayment plans. Upon receiving said notifications, which are being administered in tranches, borrowers have 90 days to make the transition.
Advocates advise SAVE borrowers in forbearance against prematurely transitioning to one of the new repayment plans.
But since the Education Department never formally repealed REPAYE, it technically remains on the books, at least until July 1, 2028. That’s what the plaintiffs have argued in Havens v. U.S. Department of Education.
If their legal challenge is successful, the millions of borrowers being kicked off of SAVE would be able to enroll in REPAYE during the current transition period, meaning they wouldn’t be forced onto one of the new plans unless the Education Department formally repeals REPAYE through APA rulemaking procedures rather than by way of administrative fiat. The ongoing litigation has since been expedited due to the compressed timetable. Trump’s Education Department is working to dismiss the case.
As Havens proceeds, debtor advocates have advised SAVE borrowers, namely those whose loans are in forbearance, against prematurely transitioning to one of the new repayment plans. “We’re still waiting to see what happens to the people that just sit still,” Pierce told the Prospect, “but it does seem like just sitting still is a viable option for people that don’t have any other choice.”
Read: Court demands that student loan borrowers pay moreCONCURRENT WITH THE ROLLOUT of these sweeping changes to the federal student loan system, the National Association of Student Financial Aid Administrators was commemorating its 60th anniversary at a four-day conference in National Harbor, Maryland.
Multiple private student loan lenders could be counted among its sponsors, with Ascent and MOHELA laying claim to gold sponsorships, and Earnest and SoFi sparing no expense to secure their status as platinum sponsors.
Seven years after the Federal Trade Commission ordered it to pay a settlement for deceiving debtors about how much they could save by refinancing their student loans, SoFi was named an event sponsor at one of the event’s lounges. The lounge was outfitted with gold-plated glass archways, miniature champagne bottles filled with M&Ms, and specialty National Association of Student Financial Aid Administrators 60th anniversary flutes. But the real cherry on top was the woman in a silver sequin dress, handing out glasses of champagne while dangling from a chandelier. (Photos provided by anonymous attendee.)
Private student loan lenders stand to make out well in the aftermath of the Education Department’s changes. With new student loan programs unaffordable and in some cases inadequate, borrowers will be forced to turn to the private market.
For one attendee who spoke to the Prospect on condition of anonymity, the presence of student loan lenders “in every facet of the event” was not only emblematic of their historically cozy relationship with university administrations, but that sense of capture seemed to seep into some of the panels themselves. At one such panel, panelists discussing the student loan lender market seemed to be resigned to its projected expansion, which they shrugged off as an apparent inevitability, according to the attendee.
“It’s almost as if they’ve forgotten what happened before,” the attendee said. “They’re inviting the same kind of scrutiny that led Congress to act.”
While private student loan lenders and collections agencies alike rejoice, student loan borrowers face a chaotic transition.
National Association of Student Financial Aid Administrators president and CEO Melanie Storey disagreed with that characterization. “Providing education about private lending is not an endorsement of private lenders; it is part of ensuring that financial aid administrators can help students make informed decisions based on the options available to them,” she said in an emailed statement to the Prospect. “Sponsors do not influence NASFAA’s educational programming, speaker selection, policy positions, or advocacy priorities.”
In response to a series of conflict of interest scandals involving lenders and college financial aid offices, Congress did indeed act to regulate the private student loan market more than 20 years ago, by banning gifts to financial aid officers, requiring colleges to adopt lender codes of conduct, restricting preferred lender arrangements, forcing disclosure of lender relationships, and largely prohibiting lender staffing of financial aid offices.
While private student loan lenders and collections agencies alike rejoice, student loan borrowers face a chaotic transition. Roughly 40 percent of Americans, a disproportionate amount of them low-income students and students of color, are effectively “locked out of the traditional private student loan market,” according to a Protect Borrowers analysis: “The changes Congress made in the [One Big Beautiful Bill Act] will force our most vulnerable students to either give up on higher education or take on even more expensive, predatory forms of debt to pay for college.”
Nearly two-thirds of Pell Grant recipients cannot qualify for a private student loan made by a traditional student lender.
“The Trump White House has a vision for who in America gets to access the American dream,” Pierce of Protect Borrowers told the Prospect. “You see the fingerprints of that really dark vision for who wins and who loses in Donald Trump’s economy all across the Big Beautiful Bill, but especially when you look at what happens to people who no longer have access to federal student loans.”
