Rising student loan defaults and alterations in repayment plans explained

The education landscape in the United States is set for a significant change with the implementation of the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025. This landmark legislation overhauls federal student loan repayment and forgiveness, with key changes taking effect from July 1, 2026.

Consolidation of Income-Driven Repayment Plans

Most of the current income-driven repayment (IDR) plans will be retired by July 1, 2028. Two plans will remain: the existing Income-Based Repayment (IBR) plan, split into two versions based on loan origination date, and a new Repayment Assistance Plan (RAP).

For loans before July 1, 2014: Payments are 15% of discretionary income, with forgiveness after 25 years.
For loans on or after July 1, 2014: Payments are 10% of discretionary income, with forgiveness after 20 years.

The RAP plan, replacing other IDR plans, will base payments on income with an interest subsidy to limit balance growth, but forgiveness will take 30 years and payments might increase for lower-income borrowers.

Elimination of Other Repayment Plans

Graduated and extended repayment plans will end for new borrowers after July 1, 2026. The standard repayment plan will have new, possibly longer terms.

Changes to Loan Types and Borrowing Limits

Graduate PLUS loans are eliminated for new borrowers, and Parent PLUS loans have stricter limits and repayment conditions. Loan amount caps are also set, such as $20,000 per year for Parent PLUS loans, $20,500 for graduate unsubsidized loans, and $50,000 per year for professional students.

Stricter Deferment and Forbearance Rules

Deferments for unemployment or economic hardship will no longer be available for new loans after July 1, 2025. Forbearance will be limited to nine months within any two-year period, making continuous payments more necessary.

Loan Forgiveness and Public Service Loan Forgiveness (PSLF)

PSLF will remain for public service employees but is ended for medical and dental residents. Forgiveness timelines are generally extended, especially under the RAP plan.

Refinancing and Switching Plans

Borrowers with older loans (before July 1, 2014) can maintain or switch to the older IBR plan. Borrowers with loans after that date can choose the new IBR or opt into the RAP once it is fully rolled out. Parent PLUS loan borrowers must consolidate their loans by July 1, 2026, to stay eligible for income-driven plans and then enroll in those plans. New federal loans borrowed after July 1, 2026, must conform to the new repayment rules, meaning all loans under a borrower’s name must be repaid under the same plan.

Refinancing federal loans privately remains possible, but borrowers should consider losing federal protections and forgiveness opportunities before doing so.

Current Challenges and Helpful Resources

Forgiveness through Income-Based Repayment is blocked while the Department of Education says systems are being updated to accurately count the months that people have made payments. Borrowers who consolidate their loans, or take out a new federal loan after July 1, 2026, will only be able to access the Repayment Assistance Plan.

For more information on their loans and repayment options, borrowers can visit StudentAid.gov or contact their loan servicer. They can also reach out to the Student Borrower Protection Center, the National Consumer Law Center, and their congressional representative's office for help.

With these changes, it's essential for borrowers to stay informed and plan accordingly. The new income-driven repayment plan requires 30 years of payments before forgiveness, and student loan forgiveness under SAVE, ICR, or the Pay As You Earn plans remains paused due to a court order. Approximately 1.5 million student loan borrowers are currently stuck in a backlog, according to the Department of Education.

Rising student loan defaults and alterations in repayment plans explained