The Trump administration is beginning to collect on student loans, something that will affect approximately five million people. Following the signing of the One Big Beautiful Bill, popular repayment plans, such as SAVE and Pay As You Earn (PAYE), were eliminated. From now on, Americans with federal loans will have to opt for another type of repayment. For the 7.7 million Americans enrolled in the Biden-era SAVE plan, interest collection will resume on August 1, the Department of Education announced last week.
Two repayment options starting in 2026
“The Trump administration will help borrowers select a new, legal repayment plan that best suits their needs and helps them achieve a sustainable financial path, while protecting American taxpayers,” the Statement says.
Borrowers in programs that will be eliminated will have until July 1, 2028, to switch to a new plan. Beginning July 1, 2026, new borrowers will be able to choose between a standard repayment plan and an income-based plan, called the Repayment Assistance Plan. The standard plan will involve fixed payments over a period of 10 to 25 years, while the income-based plan will allow payments between 1% and 10% of monthly income, extending for up to 30 years. After 30 years, the borrower’s remaining loan balance will be canceled, as is currently the case once an individual’s repayment window ends.
Those who still owe money by July 1, 2028, will be forced to change their income-driven repayment
On the other hand, it’s worth noting that those who still owe money by July 1, 2028, will be forced to change their income-driven repayment plan to the new payment assistance plan or standard plan.
The Trump administration bases its decision on a consequence caused by Joe Biden’s decisions while he was in office. “For years, the Biden Administration used so-called ‘loan forgiveness’ promises to win votes, but federal courts repeatedly ruled that those actions were unlawful. Congress designed these programs to ensure that borrowers repay their loans, yet the Biden Administration tried to illegally force taxpayers to foot the bill instead,” said U.S. Secretary of Education Linda McMahon.
“We have focused on strengthening the student loan portfolio”
The budget law will also increase scrutiny over who is eligible for these grants and who is not. As a result, higher-income families will have a harder time obtaining Pell Grant funds, according to the U.S. Senate Health, Education, Labor, and Pensions (HELP) Committee.
“Since the start of the Trump Administration, we have focused on strengthening the student loan portfolio and simplifying repayment to better serve borrowers. As part of this effort, the Department is urging all SAVE Plan borrowers to quickly transition to a compliant repayment plan, such as the Income-Driven Repayment Plan,” McMahon said.
“We had already received nearly $282 million in collections from defaulted student loans”
In the official report from the U.S. Department of Education, they confirm that collections resumed on May 5, after a five-year hiatus, and state that they “sent emails to more than 23 million borrowers reminding them of their legal obligation to repay their loans, as well as the benefits of making regular payments.” Finally, the Department asserts that by the end of June, they “had already received nearly $282 million in collections from defaulted student loans through voluntary payments and the Treasury Offset program, administered by the U.S. Department of the Treasury.”
Students will now have to think about the coming years, whether they continue their studies or have just completed their academic careers, but still have state loans. This is certainly a blow, especially for those who are barely making ends meet.
