Why New Student Loan Changes May Raise Bills for Those Least Able to Pay

Consumer advocates say new rules will make repayment even more difficult for many low-income student loan borrowers.

The U.S. Department of Education announced on April 30 the final rules for the federal student loan program. The rules change repayment options and impose new limits on the amounts college students and their parents can borrow.

One key result, according to the National Consumer Law Center, is that monthly payments could rise for some low-income borrowers under the new Repayment Assistance Plan. Here’s why. At present, a limited amount of income needed to cover a borrower’s basic needs gets left out of the payment formula. 

The new Repayment Assistance Plan, an income-driven repayment plan from the U.S. Department of Education, eliminates this exception. This results in higher monthly payments for the lowest-income borrowers, according to the NCLC.

“Low-income borrowers in particular are at high risk of not being able to afford their new payments and falling behind, swelling the ranks of the nearly 12 million people already behind or in default on their student loans.” said Abby Shafroth, Managing Director of Advocacy at the National Consumer Law Center.

The End of Unemployment and Hardship Help

Borrowers facing economic hardship or unemployment could lose certain temporary payment-postponement options as the rules are implemented as well. The new rules sunset an option that would temporarily postpone student loan payments in those circumstances.

The new rules also make qualifying for a loan forgiveness program a longer process. Under the new Repayment Assistance Plan, some borrowers will need to make income-based payments for 30 years before qualifying for forgiveness.

Better Help for Borrowers in Default

The new rules make it easier for borrowers to get their student loans out of default by establishing a new online process that allows borrowers to match their income data from tax data, according to a press release from the National Consumer Law Center. 

Here is something else that is new. The Department of Education also will allow student loan borrowers to request an income-driven repayment plan when they request to rehabilitate their loans. 

“The process for getting out of default is an archaic, error-ridden hassle, requiring multiple phone calls, paper documentation, snail mail, and paper checks that has hindered many borrowers from getting back into good standing,” said Shafroth. 

“Legal aid attorneys who help borrowers navigate the repayment process identified these problems and proposed common-sense solutions, and it’s great to see the Department of Education adopt them.”

How Student Loan Repayments Will Be Changing

These final rules phase out the Grad PLUS program, and there will be new annual and aggregate loan limits for both graduate and professional students. 

Institutions will be allowed to establish their own loan caps based on the value of academic programs, according to the U.S. Department of Education. Also brand-new are rules creating a Tiered Standard Repayment Plan.

“The Trump Administration is focused on putting students and taxpayers first, which is why we are implementing durable policies to make higher education more affordable,” said Under Secretary of Education Nicholas Kent. 

 “This final rule will help ensure students can access higher education without racking up excessive loan debt, offer repayment options that better serve borrowers, and force institutions to reduce costs.” 

The End of the SAVE Plan

Earlier this year it was announced the SAVE Plan, which stands for Saving on a Valuable Education, will be coming to an end. The repayment plan, which has more than 7 million student loan borrowers, is being phased out. 

Starting on July 1, federal loan servicers will start issuing notices to SAVE Plan borrowers, instructing them to enroll in a new repayment plan of their choice within 90 days.

If a borrower doesn’t enroll in a new plan within 90 days, their loan servicer will automatically enroll the borrower into either the Standard Repayment Plan or the new Tiered Standard Plan.

The Bottom Line

The U.S. Department of Education has released the final rules for its federal student loan program. As a result, borrowing for college will get more expensive for lowest-income borrowers because of a change in the payment formula on the new Repayment Assistance Plan.  

Qualifying for a loan forgiveness program will take 30 years of income-based payments rather than 20 years.

The rules also eliminate the Grad PLUS program, establish a Tiered Standard Plan, and create a new online process for borrowers who are getting their loans out of default.