Student loan payments are anticipated to rise significantly as 2025 approaches, with many borrowers unsure of what their financial future holds. The College Cost Reduction Act, recently introduced by Representative Virginia Foxx, aims to reform the student loan system and reduce the national deficit by up to $280 billion over the next decade. While this legislative move intends to reshape student debt management, it also sparks concerns among borrowers about increased financial pressure.
One major element of this proposed legislation includes the potential scrapping of President Biden's SAVE income-driven repayment plan. According to Jessica Thompson, the Senior Vice President at The Institute for College Access & Success (TICAS), the likely impact of this change would be quite bleak: "The reality is, the College Cost Reduction Act would increase financial burdens and risks for students and borrowers." This plan could lead to higher monthly payments and escalate the risks of delinquency and defaults among borrowers.
Another key component of the proposal would require borrowers to repay their loans on the standard 10-year repayment plan, which is likely to result in higher payments for countless individuals. Caps on borrowing could limit undergraduate loans to $50,000, and graduate students to $100,000. Michael Ryan, founder of michaelryanmoney.com, warns about the repercussion of these changes, particularly for students enrolled in expensive professional programs such as law or medicine. He explains, "High-income graduate borrowers might benefit from the capped payments, but for others, access to federal loans may become more challenging."
The proposed legislation also doubles Pell Grant awards for juniors and seniors who are on track to graduate. While this element is seen as positive by some, financial literacy expert Alex Beene expresses doubt, stating, "It's difficult to see outside of additional Pell Grant assistance how this really saves incoming students on the price of education." He cautions against the shift of financial responsibility to universities, which could result in soaring tuition costs.
Eliminations of PLUS loans for graduate students and parents present another significant concern. Michael Lux from Student Loan Sherpa highlights how this could restrict student access to higher education. "Fewer students who can attend school might push prices down, but it only helps those who can afford to pay out of pocket or qualify for private financing," he notes.
Increasing trends are also evident at the interest level, as 2024 brought the highest rates for federal student loans seen since before the Great Recession. Undergraduates faced interest rates of 6.53%, and graduate borrowers saw rates over 9%. This rise means students beginning repayment could be hit with hundreds of additional dollars annually. With federal rates being fixed, borrowers must now make tough choices between taking on expensive federal loans or pursuing more hazardous private loans, which lack borrower protections.
Given the Republican majority controlling the House of Representatives, the bill's chance of passage appears significant. Still, experts predict considerable revisions will be necessary to garner bipartisan support. Meanwhile, student loan borrowers are left questioning the future of their debt and the inevitable stress of increasing payments hovering just over the horizon.
Consumer advocates express significant concern about the fate of the U.S. Department of Education's new affordable repayment option for borrowers, commonly known as the SAVE plan. This initiative had initially aimed to cut monthly bills for millions of federal student loan borrowers by half. With President-elect Donald Trump’s clear disapproval of student debt relief efforts, experts are wary of the SAVE plan’s potential discontinuation or alteration.
The impending changes spell doom for many students, as Betsy Mayotte, president of The Institute of Student Loan Advisors—a nonprofit dedicated to helping borrowers navigate debt—suggests. She opines, "For those worried about SAVE going away, I think it probably will, unfortunately." Students enrolled under this plan may find themselves switching to another repayment model, which could lead to substantially higher monthly payments.
To elaborate, the SAVE plan was introduced by President Biden and addressed income-driven repayment (IDR) strategies. Under this plan, borrowers’ monthly payments are calculated based on their discretionary income, benefiting those with relatively lower earnings. For example, borrowers earning less than approximately $15 per hour previously faced $0 monthly bills. The most significant change facilitated through SAVE allowed borrowers to pay just 5% of their discretionary income instead of 10% as was the norm under the prior REPAYE option.
Should the Trump administration resume power and successfully challenge the SAVE plan’s legality, many borrowers will revert to older payment plans featuring higher repayment amounts. For many, this could mean they are forced to make difficult financial decisions, as reflected by statistics showing around 30% of borrowers have had to sacrifice essentials like food or medicine due to overwhelming monthly bills, according to a recent Consumer Financial Protection Bureau survey.
With so much uncertainty clouding the future of student loan repayment, borrowers remain on the edge, fearing the inevitable increase and the potential return to burdensome financial commitments. Experts agree this transition could lead to significant hardships for many, resulting in real-life consequences as individuals face these pressures.
Representatives from consumer advocacy groups understand the dire scenario this could create. "What challenges are people going to face when their payments double?" raises Malissa Giles, a consumer bankruptcy attorney. It’s clear many are holding their breath as the new political climate could dramatically reshape the student loan repayment framework, with all eyes now fixed squarely on Washington and the coming legislative changes.
