As 2025 draws to a close, federal student loan borrowers are grappling with significant changes to the system. The recent moves by the Trump administration and Congress have altered borrowing limits, repayment plans, and forgiveness options, leaving many in uncertainty as they head into the new year.
The Education Department’s decision to cease the Saving on a Valuable Education (SAVE) Plan has been a central development. Initially introduced by the Biden administration, SAVE was designed as a flexible, affordable repayment option for borrowers. However, legal challenges from Republican state attorneys general led to a proposed settlement to terminate the plan. This decision has left around 7 million borrowers in limbo, as they must now transition to different repayment plans.
End of the SAVE Plan
The SAVE Plan was praised for its flexibility and affordability, offering potential forgiveness and minimal monthly payments for low-income borrowers. Persis Yu from Protect Borrowers described it as “the most affordable, generous and flexible plan for millions of student loan borrowers.” Despite its benefits, the plan faced legal opposition, resulting in a proposed settlement to end it. Nicholas Kent, Under Secretary of Education, stated, “The law is clear: if you take out a loan, you must pay it back.”
Under the proposed agreement, the Education Department plans to move SAVE participants into alternative repayment plans. This shift creates financial uncertainty for borrowers who had adjusted their budgets based on the SAVE plan’s provisions.
Public Service Loan Forgiveness Concerns
For borrowers like Liz Kilty, an oncology nurse pursuing Public Service Loan Forgiveness (PSLF), the changes to SAVE have delayed their progress toward loan forgiveness. Kilty expressed frustration, saying, “This is the year I’m going to be done, and this is the year that they’re going to screw things up?” She, along with others, has applied for the PSLF Buyback to expedite forgiveness despite the disruptions.
While the Trump administration cannot halt PSLF due to its congressional origins, it has proposed rule changes that could complicate eligibility, leading to further legal challenges from cities concerned about potential impacts on public workers.
Changes to Repayment Plans
The One Big Beautiful Bill Act (OBBBA) introduces new repayment plans while phasing out existing options like Income-Contingent Repayment (ICR) and Pay As You Earn (PAYE) by 2028. New borrowers will soon face the choice between a standard plan with fixed payments and a Repayment Assistance Plan (RAP) that adjusts payments based on income. RAP aims to prevent loan balances from growing, though forgiveness under this plan is extended to 30 years.
New Borrowing Limits
Graduate students will encounter new borrowing caps starting July 1, 2026, with yearly limits set at $20,500 and professional degree limits at $50,000. The elimination of the grad PLUS program, which allowed borrowing up to the cost of a degree, may push some students to seek private loans. Parents using PLUS loans will also see new caps, limiting borrowing to $65,000 per child.
The Default Cliff
Amid these changes, data indicates a growing number of borrowers are struggling with repayments. Recent analysis by Preston Cooper at the American Enterprise Institute highlights a worrying trend: nearly 12 million borrowers are either delinquent or in default. Persis Yu warns of “the precipice of a default cliff,” echoing concerns about potential historic default rates.
As borrowers navigate these turbulent times, the key question remains whether the new policies will stabilize the system or exacerbate the challenges facing millions of Americans.
