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The Trump administration is preparing to roll out major changes to repayment plan options for federal student loans over the next two years, with the first significant reforms set to go into effect in just a matter of weeks. But new regulations released by the Education Department last week suggest that some borrowers may need to act very quickly if they want to preserve access to a specific student loan repayment plan. Otherwise, they could be blocked entirely.
The looming changes, which target income-driven repayment plans for federal student loans, are massive in scope. The SAVE plan (formerly called REPAYE), the newest income-driven option created under the Biden administration, will be terminated over the course of this summer, forcing millions of borrowers to quickly switch to a different plan. The ICR and PAYE plans will stick around, but only for another two years. The IBR plan will be preserved, but only for borrowers who don’t take out any new federal student loans or consolidate their existing loans after June 30 of this year. And the Education Department is launching a new income-driven planned this summer called the Repayment Assistance Plan, or RAP. RAP will offer a generous interest subsidy and lower payments than IBR and ICR in most cases, but it will also force borrowers to remain in repayment for 30 years before they can qualify for student loan forgiveness, far longer than the other options.
For many borrowers, now that the SAVE plan is dead, PAYE will offer the lowest possible monthly payments in the near to intermediate term, before that program also gets phased out in 2028. But the Trump administration’s new repayment plan regulations for student loans suggests that the Education Department may quietly try to block access to PAYE for many eligible borrowers. Those who have student loans that are eligible for PAYE enrollment and want to preserve access to that plan for the next two years may want to consider applying to switch to PAYE soon, before the new regulations become effective on July 1. Here’s a breakdown.
PAYE Can Offer Lower Student Loan Payments Than Other Income-Driven Repayment Plans
The PAYE plan was established nearly 20 years ago, and was intended (at the time) to be the most affordable income-driven repayment option for federal student loans. The plan uses a 10% discretionary income formula, similar to the REPAYE plan that was launched several years later (REPAYE was the predecessor to the SAVE plan). PAYE also allows for student loan forgiveness after 20 years in repayment, among the shortest timelines for income-driven programs.
A single borrower with an Adjusted Gross Income of $70,000 and a family size of one would have monthly student loan payments of around $385 per month under PAYE, compared to around $575 per month under IBR and around $900 per month under ICR. Payments under PAYE wouldn’t be quite as low as they would have been under the SAVE plan, but with the SAVE plan now effectively terminated, PAYE could be the next best option, at least before it disappears by July 2028.
Not everyone can enroll in the PAYE plan, however. To qualify, a borrower must have had no outstanding federal student loans as of October 1, 2007, and must also have had a new Direct federal student loan disbursement on or after October 1, 2011.
New Education Department Rules Appear To Limit Student Loan Enrollment In PAYE Through 2028
Even though the PAYE plan is disappearing by July 2028 (and with it, 20-year student loan forgiveness, except for a subset of IBR borrowers), the program may offer more affordable monthly payments than the other available income-driven repayment options. And borrowers in the SAVE plan who qualify for PAYE and are close to the end of their 20-year term may need to be able to retain access to PAYE to receive student loan forgiveness soon. IBR requires 25 years in repayment for most borrowers before they can qualify for loan forgiveness, and RAP will require 30 years in repayment before their student loans can be discharged.
But the Education Department appears to be trying to limit new enrollments in PAYE, particularly for borrowers who are about to be kicked off the SAVE plan. The new regulations the department released last week impose conditions on PAYE enrollment.
“Through June 30, 2028, a borrower may repay under the PAYE plan only if the borrower (i) Has loans eligible for repayment under the plan; (ii) Is a new borrower; (iii) Elects to have their aggregate monthly payment amount recalculated to not exceed the applicable amount when the borrower initially enters the plan; (iv) Was repaying a loan under the PAYE plan on July 1, 2024,” reads the new rules that are set to go into effect on July 1. “A borrower who was repaying under the PAYE plan on or after July 1, 2024, and changes to a different repayment plan in accordance with § 685.210(b) may not re-enroll in the PAYE plan.”
The restrictions in these regulations appear to primarily target two groups of borrowers, as the other rules were already in place. The first group are borrowers who were eligible for PAYE and perhaps were even enrolled in PAYE at some point, but then switched to a different plan (such as the SAVE plan) before July 1, 2024; the SAVE plan was launched in 2023. These borrowers will not be permitted to enroll in PAYE under the new rules. The second group are borrowers who switch out of PAYE to a different repayment plan (such as RAP), but then want to get back into PAYE before it gets phased out; the Education Department will seemingly not allow that. This comes on the heels of another major rule change the department quietly rolled out last month, restricting the ability of borrowers in RAP to transfer their student loan forgiveness credit to other income-driven repayment plans.
Education Department Maintains There Will Be No Restrictions On Student Loan Enrollment In PAYE
The text of the new regulations appears to directly contradict public assurances the Education Department has made to borrowers that the PAYE plan will remain fully available and accessible to those who are eligible until it is phased out in 2028, with no restrictions on enrollment.
“If you have eligible loans taken out before July 1, 2026, you’re permitted to access the Income-Based Repayment (IBR), Income-Contingent Repayment (ICR), and Pay As You Earn (PAYE) Plans on or after July 1, 2026,” says online guidance updated last month on the Education Department’s website. “There will be no restriction on enrolling in the IBR, ICR, or PAYE Plans on or after July 1, 2026, unless you receive a disbursement on a new loan on or after July 1, 2026.”
The new regulations also don’t appear to directly align with the text of the One Big, Beautiful Bill Act, the underlying legislation congressional Republicans enacted last year that the department’s regulations are intended to implement. The bill does not expressly contain the new enrollment restrictions enumerated in the department’s updated regulations.
What Student Loan Borrowers Eligible For PAYE Should Do
Those who are already enrolled in PAYE may want to stick with that plan for now; otherwise, they may not be able to switch back. Borrowers whose federal student loans are eligible for PAYE but are not yet enrolled, particularly those who are still in the SAVE plan forbearance, may want to consider switching to PAYE as soon as possible, before the new rules take effect on July 1. This is especially true for borrowers whose monthly payments will be lowest under PAYE, and those who may soon qualify for 20-year student loan forgiveness. With the SAVE plan soon coming to an end, anyway, and the Education Department forcing borrowers to select other options starting this summer, acting sooner rather than later to enroll in PAYE may be prudent. Borrowers may experience faster processing if they apply online at StudentAid.gov and consent to linking to the IRS to import their income data from their federal tax return.
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