Impact on Repayment and Forgiveness Programs

NPR This is the indicator from Planet Money, I'm Adrian Ma. After home and auto loans, student loans are the third largest category of debt that consumers hold. Now the vast majority of these are issued through the federal government, and some forty three million people have federal student loan debt. So if this is you or you're thinking about taking out a new loan, then july first is a date you should pay attention to because big changes are coming to this very big program. It's huge. And it's huge because it's not one thing, it's not two things. It's , you know, I can name a dozen things off the top of my head large and small that are changing that will affect in all, probably most borrowers. Corey Turner covers education for NPR , and some of them will be filled immediately and others could end up changing the system considerably without any ever really noticing or understanding Huh ? Why did that happen? Yeah, why is this happening? And what do these changes mean for current and future borrowers? That is what we're talking about on today's show . After the break, we'll have a conversation with Cory about the biggest overhaul to the federal student loan system in decades . About a year ago, Republicans in Congress passed a sprawling piece of legislation, the so called One Bigaut Beiful bill Act and among its many provisions, a major overhaul of the federal student loan programs. NPR's Cory Turner says these changes, which go into effect this week will affect just about everyone who has a student loan or is thinking about getting one. Let me just tick through the biggest ones in my mind. So number one, we know there's still roughly seven million borrowers in the Biden era repayment plan known as SAVE? Right. This was a Biden administration program that launched in twenty twenty three. But then some Republican led states, they filed a lawsuit against it, arguing that it was federal overreach and it would cost taxpayers in the long run . And so it got tied up in the courts and now save is over. And so those borrowers starting july first , they need to choose a new repayment plan. And if they don't do that within roughly ninety days , they're going to be put into the least generous, least flexible repayment plan. Also, july first , they're essentially for new borrowers phasing out all of the other old repayment plans , they're creating two new repayment plans . One is essentially a new and improved standard plan, where basically your monthly payment is the same month after month, year after year , and then the other plan is based on your income. So the less you make , the less you pay. Also anyone looking to take out graduate student loans a huge change now unless they're pursuing a medical degree or studying like clinical psychology or dentistry, they're going to be capped at twenty thousand five hundred dollars a year. That's a pretty severe limit compared to unlimited borrowing of recent years. So like, what are these changes ultimately aimed at accomplishing? Oh, there are a couple different answers here, Adrian. Number one , let's just be honest, the bill needed to save money because it was an enormous beautiful bill. Yeah, it was an enormous tax bill. Right. Expected to cost trillions of dollars over the next decade or so. That's right. And one of the ways to just get the math to math was to cap graduate student loans . But there are also other reasons at play here. If you look at say the income driven plan, the new one, the repayment assistance plan , monthly payments on that plan compared to past income driven plans, they're going to be higher. And a part of the purpose here from Republicans really is to jump start federal student loan repayment to try to get the system back on the rails. The COVID pandemic really devastated our student loan infrastructure. Everything just ground to a halt and it stayed there. Well, was that part of that was a way of, I guess, trying to ease the burden for some people during the pandemic is to say like we're not going to be collecting on student loans for a while. That's right. But what happened was we never really eased people back into it because the Biden administration's signature effort at trying to do that was the Save repayment plan and eight million people signed up for it. And then lawsuits essentially froze the plan in its tracks. And that meant borrowers didn't have to make payments . And so part, I think of the point of this july first reset is the Ed Department is pouring a ton of resources into trying to get borrowers back into the habit and frankly repaying their federal student loans. So what is the expected impact for the borrowers going to be of this . Is this expected to make it easier for them to keep up with their loans or harder ? I think with Republicans repayment assistance plan, you know, it's not a Draconian plan compared to the Bidenera Save plan , but it is less flexible and it will be less generous . Monthly payments will be higher. It's no secret that right now we're in a pretty precarious spot with a federal student loan program with twelve million borrowers either in default or quickly sliding in that direction . And nobody, regardless of the D or the R behind their name, nobody wants to see more defaults in the program. You know, default doesn't help anybody. It doesn't help the government, and it really doesn't help borrowers . And so I think what you're seeing july first the administration and Republicans' best efforts to try to meet borrowers where they are and get them back into repayment. What about student loan forgiveness programs? Is anything happening with those? All right, so I'm going to get a little nerdy here, Adrian. Number one, please. We love it. We love nerdy. Program, public service loan forgiveness, which is essentially a quid pro quo with the government. You work for ten years as a nurse, a firefighter, police officer teacher. And after ten years and one hundred and twenty monthly payments towards your loans, you get the rest forgiven , that program remains. It is intact , it is still available. Other forms of forgiveness though, traditionally have come at the end of a term embedded in an income driven repayment plan . So after twenty years or twenty five years of payments , those are changing a bit. The brand new Republican income based plan called the Repayment Assistance Plan , it stretches that wind ow to thirty years and everybody I've talked to who knows a thing about student loan math says hardly anyone is going to qualify for any kind of forgiveness on this plan because you will have paid off your debts before you reach thirty years. Hm m. So that's a problem for newer borrowers. That's the only income plan they'll qualify for. But is there any sense of what that will mean for borrowers? Then will we see more borrowers in default or fewer people taking out federal loans ? Oh , those are the million dollar questions, Adrian. Again, there are some seven million borrowers who are still enrolled in the Biden Eras save plan. They need to change plans. And it's a huge question. Will they all enroll in a new plan ? If they don't, and they're automatically put in the standard plan ? Will they actually begin repaying loans or will we just see defaults skyrock et? It's possible and I'd be lying if I told you I knew what was going to happen. I do think overall , we've spent a really long time now, what? Six, seven years focused on student loan forgiveness, on helping borrowers bear the burden of rising college costs . And I think that conversation that political conversation anyway ended with the Biden administration. And I think that requires a sort of mental reset for borrowers too , who are going to have to come to grips with the fact that in spite of years of talk about loan forgiveness , they're going to have to get back to the business or start for the first time ever , repaying their loans. Corey Turner is a correspondent and senior editor for NPR's Education Desk. If you want to know more information about how these loans can specifically affect you , he's written a really helpful guide on nprot org. We'll drop a link to that in the show notes. And if you can't get enough Cori, listen to Planet Money this week. He and the Planet Money crew look into whether making student loans less generous could actually bring down the cost of school . This episode was produced by Corney Bridges with Engineering by Travis Hagen. It was fact checked by Sarah Juais, Cancan isad oura editor, and the indicators of production of NPR.