Parents and students alike are rightly wary of borrowing too much for college, largely thanks to well-documented financial struggles among college graduates repaying their loans.
The recent resumption of student loan payments and the end of the moratorium on lenders reporting missed payments to the credit bureaus is another timely reminder: Too much debt can weigh on the finances of college graduates.
For instance, the delinquency rate on student loans has surged to record highs, observed Mark Zandi, chief economist at Moody’s Analytics.
“Since most student loans are made by the federal government, which can garnish the wages of delinquent borrowers, struggling borrowers may decide it is better to be late on paying their other debts or to curtail some of their spending,” he said.
President Donald Trump’s budget bill signed into law includes an overhaul of the student loan system. The changes are complicated, and it will take time to understand the effect of the new rules on future college students.
For undergraduate borrowers, the key changes lie with repaying student loans. (I’ll keep the focus on undergraduates.) Starting in 2026, new borrowers will have two repayment options, down from the current seven. The new rules simplify a system that had become too complicated and confusing (though it’s disappointing the bill ended the income-based SAVE program, a repayment option initiated during the Biden administration).
One option will be the fixed-standard plan, and it’s straightforward. Payments are fixed for the life of the loan, which depends on how much the student borrowed. For example, students who borrowed less than $25,000 would pay off their loan in 10 years while those with $100,000 or more would have fixed payments for 25 years.
The other choice is the Repayment Assistance Plan, a new income-based option. Payments will range from 1% to 10% of modified gross adjusted income for up to 30 years before the lender forgives the debt. That’s considerably longer than the previous income-based options.
