Student Loan Shock — Payments May Increase By $5,000 Per Year Under New Law, Warns Group

A student loan borrower advocacy organization is raising alarm bells over Republican plans to remake the federal student loan repayment system, warning that if it’s enacted, the reforms could dramatically raise costs for working families who carry student loan debt.

Earlier this week, a key House committee passed a sweeping bill intended to slash government spending associated with federal student aid programs. The legislation is one piece of a much broader effort by Republican lawmakers to extend and expand tax cuts through a process called budget reconciliation. The costs of those tax cuts, which could be several trillion dollars, would be offset in part by $330 billion in cuts to federal student loan repayment and forgiveness programs. GOP leaders argue that the cuts will streamline the federal student loan repayment system and make college more affordable. But borrower advocates have warned that the changes, if enacted, could be catastrophic, causing sharp payment increases for many Americans.

“Today, House Republicans showed their hand—tens of millions of students and working families across the country will see an affordable higher education pushed further out of reach and be forced to pay President Trump’s government thousands of dollars more per year so that right-wing lawmakers can deliver trillions in tax cuts to Elon Musk and his billionaire buddies,” said Student Borrower Protection Center policy director Aissa Canchola Bañez in a statement on Monday. “Instead of bringing down the cost of college, House Republicans want to punish millions of borrowers desperately trying to repay their debts, pushing them further into the red while allowing some of the most predatory actors in higher ed to profiteer at their expense.”

Here’s what student loan borrowers should know.

Republican Bill Would Make Huge Changes To Federal Student Loan Repayment Plans

One of the central features of the House GOP bill is the repeal of the SAVE plan, as well as all other current IDR plans (including Income-Based Repayment, Income-Contingent Repayment, and Pay As You Earn) for student loan borrowers who take out loans after July 1, 2026. Meanwhile, current borrowers who have been enrolled in more affordable IDR programs like SAVE, PAYE, and a newer version of IBR would be forced into a more expensive version of IBR under the terms of the bill, increasing their payments.

The student loan payment shock would be particularly acute for borrowers who had enrolled in the SAVE plan. SAVE was created by the Biden administration in 2023 to provide borrowers with much more affordable payments and a pathway to faster student loan forgiveness. But critics of the plan said it was too generous, and essentially operated as a costly backdoor student loan forgiveness plan.

“The Biden-Harris administration’s foolish actions in the federal student loan program exacerbated this budgetary catastrophe,” said Education and Workforce Committee Chairman Tim Walberg (R-MI) in a statement on the House floor earlier this week. “From their radical ‘SAVE’ loan repayment plan to the never-ending repayment pause, Democrats are intent on forcing taxpayers to pay for free college. Dumping more federal money into a broken system doesn’t mean that system will work. In fact, government spending on higher education has reached record highs yet millions of students benefiting from those funds will ultimately end up with a degree that doesn’t pay off or fail to finish school altogether.”

Under the proposed legislation, the SAVE plan and the other IDR programs would be replaced by a new income-driven plan called the Repayment Assistance Plan, or RAP. While RAP would operate in a similar way as the other programs, with monthly payments calculated based on a borrower’s income and family size, the terms are not nearly as generous as the other plans, and especially when compared to SAVE. Borrowers would also not qualify for student loan forgiveness under the new plan until after 30 years in repayment – far longer than the 2o or 25 year repayment terms under SAVE, ICR, IBR, and PAYE.

Some Borrowers Will See Massive Increases To Their Student Loan Payments

In a letter submitted to Chairman Walberg on Monday, the Student Borrower Protection Center warned that if the GOP proposal becomes law, many Americans will experience sharp increases in their monthly student loan payments, potentially costing them thousands of dollars more per year.

“Eight million borrowers last made payments under the SAVE plan in July 2024 and have had their ability to pay suspended for approximately nine months as a result of partisan lawsuits challenging the program,” said the SBPC in its letter. Under the terms of the new bill, “These borrowers will experience an immediate and unprecedented payment shock as their monthly payments jump from $0 per month to $431 for a typical single student loan borrower with a college degree—an annual increase of more than $5,000.”

The SBPC wrote that a typical federal student loan borrower in a family of four, with an income of $80,263 and an undergraduate federal student debt balance of $38,374, would have had payments of $33 per month under the SAVE plan. But because of the eligibility parameters for the new GOP income-driven plan, they would not be eligible to repay their loans based on their income if the new bill becomes law. Instead, they would be placed in a Standard plan with payments of around $431 per month. The SBPC estimated that the family in this example would pay upwards of $4,700 more per year on their student loans than they would have under the SAVE plan if the GOP bill becomes law.

“Families across income levels will pay more money each month under the current proposal than under the SAVE plan,” wrote the SBPC. “Additionally, the current proposal would impose higher monthly payments for borrowers and their families than almost every other payment plan.”

Jason Delisle, a higher education and student loan expert at the Urban Institute, posted an analysis of the RAP plan on X that disputed this. Delisle indicated that monthly payments for middle-income borrowers would be comparable to the PAYE and new IBR plans, and payment under RAP could possibly be even slightly lower than under those plans. However, with PAYE and new IBR phased out under the legislation, borrowers would either have to move into the more expensive “old” IBR plan or opt into the RAP plan, which would add 10 years of additional payments to their repayment term (PAYE and new IBR have 20-year terms, while RAP has a 30-year term).

Furthermore, when compared to the SAVE plan, payments under RAP would almost universally be higher across the board. In addition, payments under the RAP plan would be higher for low-income borrowers than under any existing IDR option, including PAYE and new IBR. That is because RAP has a minimum monthly payment requirement – a unique feature that is not part of ICR, IBR, PAYE, or SAVE. Under each of those plans, families living below the poverty line would have no monthly payment obligation. But that’s not the case for the RAP plan.

“The bill reflects how out of step the drafters are with low-income Americans,” said Abby Shafroth, co-director of advocacy at the National Consumer Law Center, in a statement on Tuesday. “House Republicans propose charging low-income students more interest by ending the subsidized loan program for students with financial need; more than tripling monthly bills for borrowers currently enrolled in SAVE; and requiring that even families living below the poverty line reallocate $120 each year from funds that would otherwise go towards food, rent, or medication or face default.”

What’s Next For Student Loan Reform Bill

The full House has not yet passed the GOP proposal. The unveiling of the legislative text and passage by the Education and Workforce Committee is just the next step in what will be a complicated process over the next several months to enact this, and many other separate proposals, through the budget reconciliation process. And whatever the House ultimately passes would need to be squared with whatever version of the bill the Senate passes (it’s unclear at this stage whether GOP leaders in the House and Senate are aligned on these specific student loan reform plans).

But Republican leaders in Congress hope to pass the reconciliation bill by this summer. The SBPC warned that passing the bill in its current form could be disastrous for borrowers, as the economy increasingly is flashing warning signs.

“As the committee considers this legislation, it is clear that a vote for this bill is a vote to saddle millions of borrowers across the country with more student loan debt, at the same moment that a slowing economy, a reckless trade war, and spiraling costs of living squeeze working families from every direction,” the group warned in its letter.