Changes to the eligibility criteria for income-based student loan repayment plans may soon benefit millions of borrowers in the United States. The U.S. Department of Education announced that it will implement provisions from President Donald Trump‘s recent spending legislation, which removes the requirement of partial financial hardship for enrollment in these plans. This shift could open the door for borrowers who have previously been ineligible due to higher income-based payments or those enrolled in repayment plans that are being phased out.
The Department of Education stated that this change is expected to take effect by December 2025. Prior to this update, borrowers needed to prove they experienced partial financial hardship, which meant their monthly payment based on their income must be less than the amount required to pay off their full loan balance over a typical ten-year repayment period. The new guidelines will allow a greater number of borrowers to access income-based repayment (IBR) plans, which offer monthly payments tied to income levels and promise forgiveness after 20 or 25 years, depending on the loan’s origination date.
In light of these upcoming changes, the Department of Education advised that servicers will temporarily hold applications for IBR plans that would have otherwise been denied. The guidance encourages borrowers who were previously denied due to lack of partial financial hardship to reapply once the system changes are finalized. This approach aims to ensure that those who qualify receive the necessary relief without unnecessary delays.
The IBR plans have been under scrutiny recently, particularly following a lawsuit from the American Federation of Teachers. The lawsuit accused the Department of Education of failing to process applications efficiently. In response, the department committed to continuing the processing of forgiveness applications for borrowers who meet the necessary payment thresholds. Some borrowers have reported that their loan balances were successfully zeroed out upon reaching those thresholds.
Additionally, the Department of Education is working on further modifications to student loan repayment options as part of Trump’s spending legislation. These changes include replacing existing income-driven repayment plans with two new options and imposing new borrowing limits on graduate and professional loans.
The context of these developments is significant, as the Trump administration proceeds with plans to restructure the Department of Education. On November 18, 2023, the department announced the transfer of several programs, including childcare initiatives and international education services, to other federal agencies. While the announcement did not mention federal student aid explicitly, concerns have been raised regarding the potential implications of downsizing the department on student-loan borrowers.
In a recent statement, Senator Elizabeth Warren called for an investigation by the Office of the Inspector General into how the dismantling of the Department of Education may have compromised federal oversight of student loan servicers. Warren emphasized the importance of robust customer service for borrowers navigating the complexities of student loan repayment.
As the changes to income-based repayment plans come into effect, more borrowers may find themselves able to manage their student loan obligations more effectively. The Department of Education continues to navigate a challenging landscape as it implements these reforms while addressing the broader context of its restructuring efforts.
