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American families are facing an acute affordability crisis: sharp increases in the cost of necessities such as groceries, utilities, child care, housing, and health care have driven the American Dream out of reach for many. And nowhere is this affordability crisis more evident than in higher education: many families simply cannot afford to pursue it.
Unfortunately, Congress’s recent changes to the federal student loan program will exacerbate the challenge of affording higher education by making student loan repayment more expensive for many borrowers. The changes will also limit students’ and parents’ access to federal student loans. These limits are not accompanied by any increases in aid or limits on tuition, which means that more students and parents will be forced to take out more expensive and risky private loans, or forgo higher education altogether.
Low-income borrowers are struggling to stay afloat; recent changes to repayment options will pull many struggling borrowers further under water.
Student loan delinquency and default rates have spiked to never-before-seen levels: one in four student loan borrowers with a payment due is delinquent, and nearly 9 million student loan borrowers are in default. In July 2025, Congress passed a budget reconciliation bill, referred to here as H.R.1, that will exacerbate the severity of the delinquency and default crisis by limiting repayment options for struggling borrowers, increasing monthly payments, and extending the time to forgiveness for many borrowers. When H.R.1’s changes go into effect, borrowers will be required to choose between a single income-based repayment plan with higher monthly payments for many borrowers, or a new tiered standard repayment that extends the repayment window for borrowers with larger balances.
The new Repayment Assistance Plan (RAP) removes the income protection available under prior income-driven repayment plans and requires even the lowest-income borrowers to pay a minimum monthly payment of $10. Under prior income-driven repayment plans, borrowers falling far below the federal poverty line qualified for monthly repayment obligations as low as $0. H.R.1 also eliminates unemployment and economic hardship deferments, which helped protect borrowers from becoming delinquent or going into default when faced with acute financial challenges.
RAP also increases monthly payments for many borrowers, particularly when compared to the most recent repayment plan option, the Saving on a Valuable Education (SAVE) plan. The typical borrower with a bachelor’s degree, for example, will see increased payments totaling $2,800 to $4,800 per year compared to the SAVE plan. In addition to payment increases, the new plan creates “repayment cliffs” that could lead to significant increases for some borrowers who experience minor increases in income. The RAP formula for calculating monthly payments scales up 1 percent for approximately every $10,000 in income, up to 10 percent of a borrower’s adjusted gross income. As a result, even a small cost of living increase in income can in some cases lead to a significant spike in a borrower’s monthly payment. In addition, key parameters of RAP are not indexed to inflation, meaning that with inflation pushing incomes higher, borrowers may be pushed into higher payment brackets, without also seeing any increase in purchasing power.
Although there are some positive aspects of RAP, such as the “principal subsidy,” which credits the first $50 of a payment toward principal and waiver of accrued interest not covered by the borrower’s calculated monthly payment, RAP’s elimination of $0 payments and economic hardship and unemployment deferrals, along with the potential for sharp increases in payments as a result of the “repayment cliff” effect, could lead to an increase in the already out-of-control rate of delinquencies and defaults. In fact, the Congressional Budget Office has indicated that borrowers enrolled in RAP “will default at higher rates than they would have with the income-driven plans available under prior law.” And, perhaps anticipating this increased likelihood for default, H.R.1 allows borrowers to rehabilitate a defaulted loan twice. Under prior plans, borrowers were only permitted to rehabilitate a defaulted loan once.
H.R.1’s loan caps will push students into the private loan market and limit access to higher education.
Prior to the implementation of H.R.1, graduate and professional students and parent borrowers have been able to borrow up to their program’s full cost of attendance. Additionally, part-time students have also been able to borrow up to the full annual limits for full-time students. H.R.1 eliminated the Graduate PLUS Loan program and introduced new aggregate and annual limits for parent borrowers, graduate students, and part-time students. Because the H.R.1 loan caps were not accompanied by additional public investment in grant aid or by any limitations on tuition costs, students will largely require the same amount of loans as before. The H.R.1 loans caps will push some students into the private loan market and prevent others from accessing higher education. With the elimination of Grad PLUS, an estimated 440,000 graduate students could be pushed into the private market annually. Additionally, analysis reveals that if the new loan limits had been in place in 2019, about 38 percent of graduate students would have needed to take on additional loans outside of federal loans. Without any federally imposed limits on tuition for participating institutions, many institutions will maintain high tuition prices. This will force students to seek more expensive, less accessible, and riskier loans from the private market. Some borrowers, particularly those with no credit history or negative credit history, will be locked out of the private market and will be forced to forgo higher education altogether. Century Foundation analysis shows that almost 40 percent of consumers could experience difficulty securing a private student loan for themselves or their family members as a result of having a limited or poor credit history, a share that rises to 51 percent in low/moderate-income neighborhoods and to 62 percent in majority-Black neighborhoods.
H.R.1’s graduate program loan limits are contingent on a program’s designation as either “graduate” or “professional,” with students in programs deemed “professional” able to access an additional $100,000 in federal student loan aid. Caps that are not accompanied by tuition limits or additional investment will force some graduate students into the private student loan market or prevent them from enrolling or completing their degrees. This could have serious consequences for students in programs that fall outside the “professional” degree designation, including students in crucial health professions. The Department of Education should consider alternative proposals that would address these concerns through a reasonable expansion of the professional degree definition.
Looking ahead.
The changes to the federal student loan program, including the introduction of new loan limits and repayment options, will drive many students into the private student loan market, increase many borrowers’ repayment costs, and create new questions and uncertainty for borrowers. At the same time, the Department of Education has a significantly reduced staff, and an enormous backlog of unprocessed applications for income driven repayment plans—a backlog of over 734,000 applications as of December 31. As set out in The Century Foundation’s prior comments on the Department of Education’s proposed rule implementing the statutory changes to the student loan program, the department should allocate additional resources to address backlogs, communicate with borrowers about the changing repayment options, and resolve servicing issues, so that administrative delays and servicing errors do not further exacerbate the delinquency and default crisis.
This commentary was adapted from The Century Foundation’s comment to the U.S. Department of Education on the proposed rule.
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