Student Loan Delinquencies Expected to Reach Record Highs Amid Plan Changes

Washington, D.C. — Student loan delinquencies are projected to hit record highs as nearly half a million federal borrowers are set to lose access to lower repayment options. This financial strain comes as many current and prospective college students question the value of their degrees.

According to internal documents from the Education Department, the income-based repayment option known as the “SAVE Plan” was introduced by former President Biden in 2023. This plan aimed to alleviate the burden of student loan repayments by capping payments at 5% of discretionary income for undergraduates and 10% for graduate loans.

However, the SAVE Plan faced legal challenges and was blocked by the courts in 2024, leaving it in limbo as interest on loans is set to resume next month. Consequently, around 460,000 borrowers who had anticipated benefiting from this program will now be unable to apply for reduced payment plans.

The SAVE Plan differs from Biden’s previous forgiveness initiative, which aimed to cancel nearly $500 billion in student debt but was ruled unconstitutional by the Supreme Court, as such actions require congressional approval.

In response to the court’s decision, the administration launched the SAVE Plan as a fallback, but with recent developments, the plan has now officially been phased out and replaced by the One Big Beautiful Bill Act. The Education Department stated that due to legal reasons, loan servicers can no longer process SAVE applications.

Moving forward, the Education Department is rolling out two new repayment plans, including a revised 10-year standard plan and a Repayment Assistance Plan (RAP) that adjusts payments based on a simplified income formula. These changes aim to stabilize the student loan system while also addressing taxpayer concerns.

Education Secretary Linda McMahon noted that millions enrolled in the SAVE Plan had been misled about potential loan cancellation and forbearance. The Trump administration criticized the SAVE Plan as being overly generous and fiscally unsound, pledging to support borrowers in finding new, legal repayment options.

As the landscape of student loans evolves, borrowers must adapt to navigate their options amid the ongoing financial challenges.