About 43 million Americans have federal student loans, and many borrowers face financial difficulties due to their loans. Student loan debt has significantly impacted the ability of Americans to buy a home, pay for basic living expenses, and go on vacations. 25% of those with student loans, over 10 million borrowers, say they find it difficult to get by financially.
Income-driven repayment plans offer some relief for those with federal student loans. Payments are based on discretionary income and recalculated annually to account for changes in family size and income. Due to the size of many loans, and the relatively small monthly payments, borrowers could see their balances increase over time even when making payments every month. Under income-based repayment plans, if loans aren’t fully repaid after 20 or 25 years, depending on when the loans were first received, the remaining balance is forgiven.
Income-driven student loan repayment has changed with the passage of the One, Big Beautiful Bill Act signed into law last year. Here’s what you need to know about the changes and how you can prepare for potentially increasing student loan payments.
How student loans are changing
The OBBBA from 2025 is eliminating several income-driven student loan repayment options, only keeping one option, the income-based repayment plan (IBR), and introducing a new option, the repayment assistance plan (RAP). Those taking out new loans or consolidating existing loans after July 1, 2026 will only have access to the RAP. Most borrowers will likely see their loan payments increase significantly. An analysis found that student loan payments will increase by about $400 per month, or more, on average. The Congregational Budget Office agrees that payments will increase significantly, but frames it as a moneymaker for the government, which it is (the federal student loan program is expected to take in an extra $271 billion over the next 10 years).
The amount of time required for loan forgiveness is also increasing, from 20 to 25 years up to 30 years. The changes to student loan repayment will make life more difficult for millions of Americans who were already struggling to make ends meet, but there are some positives to the changes being made.
The good news about student loan changes
Student loan payments increasing is a double-edged sword. In the short-term, it means less disposable income available for borrowers to spend. In the long-term, though, it could mean their loans will be paid off sooner and they will pay less overall. Loan terms and interest rates aren’t changing, but repayment options are becoming less generous and the government is restricting how little you can pay and still qualify for loan forgiveness.
It will certainly negatively impact many borrowers and they will end up paying much more before their loans are forgiven by the federal government. For some borrowers, though, the increased required payments could essentially force them to pay off their student loans faster, saving money on interest and getting rid of their student loans earlier. This change is “bad” for most borrowers in the short-term, but could be relatively good in the long-term for borrowers who can afford the increased monthly payments.
The other big change to student loans limits the amounts that students can borrow per year and overall for graduate programs, professional programs, and Parent PLUS loans for undergraduate programs. This limit on borrowing has pros and cons. Obviously limiting the amount some students can borrow is a good thing, as it has become too easy for students to rack up a massive amount of debt, especially in graduate and professional programs and with Parent PLUS loans. Limiting the amount of federal direct student loans could cause harm to students who instead choose to take out private student loans, which have higher interest rates and don’t offer any forgiveness programs.
The recent legislation impacting federal student loans contains some of the most significant changes we’ve seen in years. Changes in the student loan landscape have been sorely needed, and while these changes are a mixed bag, there are some positives which hopefully can be built on and improved in the future.
Student loan borrowers in income-driven repayment plans that will likely see significant increases in their monthly payments will probably not be too fond of the changes. However, increasing monthly payments often means loans are gone sooner and less interest is paid overall. Short-term pain, long-term gain, in other words. The limit imposed on federal loan borrowing will likely have some positive and negative impacts as well. It could help reign in the cost of college by limiting the amount students can afford, especially in graduate and professional programs. There is a danger that it could push some students towards private loans, though, with higher interest rates and no loan forgiveness.
If you will be impacted by the changes to student loans, it’s more important than ever to make sure every dollar has a purpose and that your money is being used as efficiently as possible. We can’t control how generous the government decides to be with our student loans, and repayment plans will certainly change again in the future. Work towards eliminating your student loans, and make extra payments if you have a high interest rate (above 6% in your 20s, above 5% in your 30s, above 4% in your 40s, and pay them off as quickly as possible if you are age 50+).
