and now things could go awry, and you’re just helpless.” These changes could have significant implications for borrowers like Kilty who are on the cusp of loan forgiveness.
Reforming Repayment Plans: New Rules and Limits
Reforms to student loan repayment plans will come into effect on July 1, 2026. The One Big Beautiful Bill Act (OBBBA) has introduced two new income-based repayment options aimed at making loans more manageable for borrowers with lower incomes.
- The Standard Plan: This plan offers a flexible repayment window between 10 to 25 years, depending on the borrower’s debt. Payments are structured as equal monthly installments, similar to home mortgages, and will apply to new borrowers starting in July 2026.
- The Repayment Assistance Plan (RAP): Designed for those concerned about rigid monthly payments, RAP bases payments on a borrower’s total adjusted gross income (AGI).
The government would also waive any remaining interest after the payment is made. For borrowers with low AGI, the government will match whatever they pay and apply it toward the principal. This plan aims to ensure that borrowers see their loan balances decrease every month.
The new rules are expected to impact not just future borrowers but also current ones who may choose to enroll in these plans. Additionally, OBBBA has capped graduate student borrowing at $20,500 per year and limited parent PLUS loans to $65,000 per child, aiming to reduce financial burdens on students and parents alike.
The Precipice of a Default Cliff: A Growing Crisis
Despite the numerous changes, the data indicates that millions of borrowers are struggling with their payments. Preston Cooper from the conservative American Enterprise Institute analyzed recent federal student loan data, revealing sobering numbers: 5.5 million borrowers in default, another 3.7 million more than 270 days late, and 2.7 million in early stages of delinquency. This represents over 12 million borrowers who are either delinquent or in default.
Education Secretary Nicholas Kent emphasized the importance of repayment: “If you take out a loan, you must pay it back.” However, with millions facing financial strain, there is growing concern that rising default rates could lead to an unprecedented crisis.
Persis Yu from Protect Borrowers warned about the potential for “historic default rates” in the coming years.
Starting early 2026, wage garnishment will resume for defaulted borrowers, adding another layer of pressure on those struggling with their payments. The big question remains: Can these reforms help bring borrowers back into good standing? Or will the current trends lead to an avalanche of defaults?
