With the passage of the most recent omnibus spending bill, Americans can expect enormous changes coming to the federal student loan system, including Income-Driven Repayment (IDR) plans, which will affect millions of borrowers. The bill, which impacts myriad governmental programs, will upset the existing system of repayment and replace it with a simplified set of payment plans. It will not all take effect at one time, however, but will be rolled out in stages.
As IDR plans are phased out, borrowers will still have access to the old IBR plan, slightly revised, and the newly created Repayment Assistance Plan (RAP). The changes to IBR, such as removing the Partial Financial Hardship, take effect immediately, but the RAP won’t be available until mid-2026. In the meantime, borrowers can remain on whatever IDR plan (except SAVE) they already have, and even those who aren’t yet on one can still apply until RAP is rolled out. While that may seem silly, given that the plans won’t be around for long, PAYE and ICR are planned to remain in place until mid-2028.
With the exception of IBR, all other IDR plans are expected to be phased out by 2028. At that time, borrowers will be required to switch to either IBR, RAP, or a fixed-amount repayment plan. Depending on when you took your loans out, and how much time you have left in repayment, this will affect you more or less. For borrowers with loans taken out before July 1, 2014, your payment under IBR would be 15% of your discretionary income, paid over 25 years. If you’re able to get on PAYE—or stay on it—you may be better off until 2028. For those with loans taken out after that, your payment would be 10% of your discretionary income, paid over 20 years, which is the same as PAYE, and it also has the payment cap at whatever your standard 10-year fixed amount would be. Further, with the Partial Financial Hardship removed, you could switch over to IBR at any time.
For higher-income borrowers with loans taken out after 2014, IBR could be a strong option going forward, and is available immediately. If your loans predate 2014, you may be better off sticking it out until 2028 with whatever plan you already have. For lower-income borrowers, the new RAP may be a good option; you’ll need to be careful, however, as it doesn’t take factors like family size into account like IBR and the IDR plans do. RAP also doesn’t have a payment cap, so your payment could really balloon if you have a banner year and make more money than you expected.
Even though the BBB has been passed, there is still a great deal that we don’t know about how it will impact student loans. A lot can change between now and 2028, and even now and 2026 for that matter. If you have questions about how these changes might affect your student loan repayment, give us a call. We’re always watching for new regulations and in constant dialogue with our colleagues in the field so that we’re prepared to steer you in the right direction, whatever twists and turns come your way.
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