The landscape of student loan repayment changes in 2025 has undergone one of the biggest transformations in recent years, affecting millions of borrowers across the United States. From new repayment plans to the resumption of interest and stricter Public Service Loan Forgiveness (PSLF) rules, the Department of Education has introduced a new era of student loan management that every borrower should understand.
These updates are not just administrative adjustments—they mark a significant policy shift that will influence how Americans repay their educational debt for decades to come.
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A New Chapter for Student Loan Repayment
The federal government’s approach to student debt is evolving rapidly. After the pandemic-era pause and several rounds of forgiveness proposals, new policies aim to create more structure and accountability in the repayment system.
As of mid-2025, millions of borrowers are navigating updates to repayment plans, interest rates, and eligibility rules that directly impact monthly payments and total loan costs.
Let’s explore the most important student loan repayment changes you need to know right now.
Interest Resumes for Borrowers Under the SAVE Plan
One of the most impactful changes of 2025 is the end of the interest subsidy under the Saving on a Valuable Education (SAVE) plan. For months, borrowers enrolled in SAVE enjoyed 0% interest accrual while making income-based payments.
However, starting August 1, 2025, interest began accumulating again for more than 7 million borrowers under this plan. This means monthly balances can start growing if borrowers’ payments do not cover the full amount of interest each month.
This change caught many by surprise, as they had relied on SAVE’s promise of long-term affordability. Borrowers are now being encouraged to reassess their repayment options, explore refinancing, or adjust their budgets to accommodate the growing interest burden.
Introduction of the New Repayment Assistance Plan (RAP)
Beginning July 1, 2026, new federal student loan borrowers will automatically be placed into a Repayment Assistance Plan (RAP)—a simplified version of income-driven repayment (IDR).
Key Features of RAP
- Income-Based Payments: Borrowers will pay a fixed percentage of their discretionary income, ranging between 1% and 10%, depending on their earnings.
- 30-Year Forgiveness Timeline: Loans will be eligible for forgiveness after 30 years of qualifying payments.
- Simplified Access: RAP will become the only income-driven plan available for new borrowers, eliminating confusion among multiple existing plans.
- Annual Income Verification: Borrowers must update income information each year to maintain eligibility.
For current borrowers, older repayment plans such as SAVE, PAYE, and IBR will remain available. However, they may eventually be phased out, making RAP the long-term standard for all new federal loans.
Resumption of Collections on Defaulted Loans
After several years of leniency during and after the COVID-19 pandemic, the federal government officially resumed collections on defaulted student loans in May 2025.
Borrowers who have gone more than 270 days without payment may now face:
- Wage garnishment
- Tax refund interception
- Social Security benefit offsets
This marks the end of the pandemic-era “Fresh Start” initiative, which had temporarily protected defaulted borrowers from collection actions.
If your loans are in default, you still have options. Borrowers can rehabilitate or consolidate their loans to regain good standing and stop wage or tax offsets. However, ignoring notices could lead to significant financial consequences.
Stricter Rules for Public Service Loan Forgiveness (PSLF)
Another major shift in 2025 involves the Public Service Loan Forgiveness (PSLF) program. The Department of Education has tightened the eligibility criteria for both employers and borrowers.
Here’s What’s Changed:
- Only full-time employees of government or qualified nonprofit organizations will remain eligible.
- Some organizations previously considered “nonprofit” have been reclassified and no longer qualify.
- Borrowers must make 120 on-time payments under qualifying repayment plans without interruption.
Additionally, the government has introduced stricter auditing of PSLF applications to prevent fraud and ensure compliance. This move has caused concern among borrowers in public service fields such as education, law enforcement, and healthcare, many of whom are now re-evaluating whether their employers still qualify.
Changes in Interest Accrual Rules and Borrower Protections
Beyond repayment plans, new regulations aim to make interest accrual and borrower protections more transparent.
Important Updates Include:
- Interest Capitalization Limits: Interest will no longer be capitalized (added to principal) after deferment or forbearance in some cases.
- Automatic Forbearance Removal: Servicers must notify borrowers at least 60 days before removing them from forbearance.
- Expanded Financial Hardship Options: Borrowers experiencing sudden unemployment or medical emergencies may now qualify for a shorter re-certification period.
- Enhanced Loan Servicer Oversight: Loan servicers must meet stricter communication and performance standards, ensuring accurate billing and timely responses to disputes.
These protections are meant to prevent the type of servicing errors and confusion that plagued the system in previous years.
Impact on Current Borrowers
Borrowers in SAVE
For borrowers currently under SAVE, the reintroduction of interest means monthly balances may start to grow again, even when payments are made on time. Borrowers should log into their loan servicer accounts to verify their interest rates and payment allocations.
Borrowers in Default
If your loans are in default, it’s crucial to act now. The government is once again enforcing collections, and waiting could result in garnished wages or seized refunds. Rehabilitation or consolidation can restore good standing and make you eligible for new repayment plans.
New Borrowers
For those entering repayment after July 2026, the RAP plan will be the standard option. While it offers simplicity, the longer 30-year timeline means borrowers could pay more overall compared to older plans like PAYE or SAVE.
Public Service Employees
If you’re pursuing PSLF, verify your employer’s eligibility immediately. Keep detailed records of employment certification forms and payments, as recent rule changes could affect long-term forgiveness eligibility.
How Borrowers Can Prepare
1. Review Your Current Plan
Log in to your student loan account and check:
- Your repayment plan type
- Your remaining balance and interest rate
- The total number of qualifying payments for forgiveness
2. Recalculate Payments
With interest resuming and new options emerging, it’s a good idea to recalculate your payments. Use the Federal Student Aid payment estimator to compare potential costs under various plans.
3. Stay In Contact with Your Servicer
Many borrowers lose track of communication, leading to missed payments or misinformation. Confirm your contact details and request confirmation of any plan changes in writing.
4. Consider Early Payments
If your budget allows, consider making small additional payments toward principal. Even $25–$50 extra per month can significantly reduce long-term interest.
5. Keep Documentation
Save every confirmation email, payment receipt, and letter from your servicer. These records can protect you if repayment histories are disputed later.
Projected Effects on the U.S. Economy
Economists estimate that these student loan repayment changes will have mixed effects. Restarting interest and collections is expected to bring in billions in federal revenue. However, it may also strain household budgets for millions of middle-class borrowers.
Consumer spending in sectors like housing, travel, and retail may temporarily slow as borrowers redirect income toward loan payments. Over time, however, the streamlined RAP system is expected to stabilize repayment and reduce long-term default rates.
What to Expect Going Forward
Borrowers should brace for ongoing updates through late 2025 and early 2026 as the Department of Education finalizes RAP details. Meanwhile, SAVE participants can expect rising balances unless they pay more than the minimum or qualify for forgiveness.
There’s also speculation that further legislative action could adjust repayment assistance or reintroduce targeted forgiveness for certain public sector workers—but as of now, no new forgiveness measures have been confirmed.
Key Takeaways
- Interest on SAVE loans resumed in August 2025.
- New Repayment Assistance Plan (RAP) will launch July 2026 for new borrowers.
- Collections on defaulted loans have restarted.
- PSLF requirements are tighter—verify employer eligibility now.
- Borrowers should reassess budgets and repayment plans before year-end.
Staying informed and proactive can prevent financial setbacks as the new repayment landscape takes shape.
FAQs
Q1: Can I stay on SAVE, or must I switch to RAP?
If you already have federal loans and are enrolled in SAVE, you can remain on that plan. RAP will only apply to new borrowers starting July 2026.
Q2: Will my interest be forgiven if I can’t make payments under SAVE?
No. The interest subsidy under SAVE has ended, meaning unpaid interest will now accrue and increase your balance over time.
Q3: How can I check if my employer qualifies for PSLF?
You can verify your employer’s PSLF eligibility by using the official PSLF Employer Search Tool through your loan servicer or the Federal Student Aid website.
Disclaimer
This article is for informational purposes only. It does not constitute financial, legal, or tax advice. Borrowers should contact their loan servicer or a certified financial advisor to discuss individual repayment options and obligations.