Chapter 1: What is the main topic discussed in this episode?
Hello everyone, I'm Kimberly Adams. Welcome back to Make Me Smart, where none of us is as smart as all of us. For many federal student loan borrowers, the past few years probably felt like whiplash. You had the Biden administration attempting to pass the sweeping student loan forgiveness and create more affordable repayment options, but most of those ended up struck down or held up in court.
As a result, many borrowers haven't had to make a payment in years. And then the one big beautiful bill act passed last year is set to overhaul the repayment system this year. So where we stand is a little bit confusing and it matters whether you have student loans or not.
So here to make us smart about all of this is Betsy Mayotte, founder and president of the nonprofit, the Institute of Student Loan Advisors. Welcome to the show, Betsy. Thank you. So like I said, the past several years have been kind of chaotic in the world of federal financial aid. What have you been hearing from student loan borrowers about this?
Chapter 2: What major changes are coming to federal student loans in 2026?
Confusion, anxiety, feeling sort of stuck because they don't know what to do to successfully manage their loans because of all the changes. And is there going to be more changes? Yes.
So one of the developments that's been in the news for quite a bit was this Biden era save program. And now that that program is ending, can you tell us a bit about the program and what it means for I guess there's what, seven million borrowers still enrolled in the program?
Yeah. So the SAVE plan was another version of an income-driven repayment plan, of which we've had quite a few of those over the years, and those continue to exist. But it was the Biden administration's attempt to make student loans even more affordable, especially for people who have high debt compared to what their income is. It was also intended to provide, for some borrowers, a quicker...
path to forgiveness after making a certain number of payments under that plan. Unfortunately, one of the many first time this ever happens, that plan was challenged in court by 13 attorney generals, state attorney generals.
And it appeared like the court was leaning towards siding with those attorney generals, with the plaintiffs, that the administration had gone beyond the powers that had been afforded to them by Congress to create this plan. And I'm oversimplifying, essentially because they felt it was more generous than Congress had intended.
Since then, Congress themselves got rid of the SAVE plan as part of H.R. 1 last summer. And now we're just sort of waiting for this proposed settlement agreement. So the borrowers that are, these 7 million borrowers that are still in what we call the SAVE limbo, know what direction and at what point they do need to leave the SAVE plan.
And is this a difference between their loans being forgiven or being lower? Like, what are they waiting on?
Well, right now, the people that are still in the save limbo are in forbearance, meaning that there's no payment due at all. But it also means that they're not progressing towards loan forgiveness under a different income-driven repayment plan or perhaps loan forgiveness for public service loan forgiveness or even... just paying their loans off.
So once the settlement is finalized, they will be forced off of this save forbearance and be forced to choose a different repayment plan. And for almost all of them, that is going to mean a higher monthly payment than what they had under the save plan.
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Chapter 3: How has the SAVE plan affected student loan borrowers?
We're not going to start yet. And in addition to not starting wage garnishment, they announced they were going to stop offsetting people's tax refunds, which is something they did start up again last year. As again, as I mentioned. They've always garnished the wages of defaulted student loan borrowers if those borrowers have failed to set up a repayment plan or resolve the default.
I'm not sure why they decided at the last minute to not start doing it again. I want to emphasize that I do think this is a temporary reprieve. I would not be surprised if they started doing it again either after July 1st when a lot of the HR1 provisions come into play or after midterms.
What are some of those H.R. 1 provisions, and H.R. 1 being what many refer to as the One Big Beautiful Bill Act? It made quite a few changes to federal financial aid programs.
Boy, did it ever. So as far as existing borrowers go, some of the changes include they're introducing a new repayment plan called the RAP plan. And for some borrowers, that plan is going to be more beneficial than existing plans. And for some borrowers, it's going to be nowhere near as beneficial as existing plans.
HR1 also sunsets or gets rid of some plans, some of the plans based on income, such as what we call the pay-as-you-earn plan or income contingent. Those are being phased out in 2028. For people that borrow or consolidate on or after July 1st, they will actually not have access to any of the existing plans that exist today and will only be able to use this new RAP plan or
what we're calling the tiered standard plan, which is essentially a plan where your payment's the same every month and the amount of time you have to pay it back depends on how much you owe. For defaulted borrowers, HR1 also creates an additional opportunity for people that default multiple times to get their loans out of default through a process called loan rehabilitation.
And rehabilitation can be really beneficial to someone's credit in particular. There's a lot more changes with HR1, but we only have 20 minutes, so I'm going to stop there and let you ask me more questions.
Can you explain what it actually means to be in default?
Yeah, I think that's a really good question for your listeners because there's a lot of confusion around that. Federal student loans are kind of a unique animal in a lot of ways. And one of those ways is the way we look at someone who's past due on their loans. So with a lot of consumer debt, you're considered in default if you're 30 days past due or maybe 60 days.
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