It’s been a confusing — and at times, chaotic — few weeks for student loan borrowers.
President Trump’s One Big Beautiful Bill, signed into law in early July, includes an overhaul of the federal student loan system. Among the biggest changes: the elimination of income-driven repayment plans and federal loan forgiveness programs, a push toward private lenders and the introduction of new, capped interest rates.
Boston, which is home to more than 150,000 college students across more than 30 universities, could be among the hardest hit cities. And for many, the path forward is unclear.
Don Kerr, Director of Student Lending at AAA Northeast, works directly with students and families across New England to navigate the college application and financial aid process. He joined GBH’s All Things Considered host Arun Rath to help break down what’s changed, what hasn’t, and what to look for. What follows is a lightly edited transcript of their conversation.
Arun Rath: Let’s start off with a big overview here — the big picture. Can you briefly walk us through the biggest changes under the new federal student loan overhaul?
Don Kerr: Yeah, there’s lots to unpack here. There are changes for every group. People who may be considering going to college in the future are going to have changes. The schools themselves are undergoing changes. And really importantly, too, a lot of the borrowers who have graduated and are in repayment already, they’re going to have a lot of changes as well.
This covers things from changes in the repayment plans that are available to them, changes in the amount of money families get to borrow from year to year, to pay for college. Colleges even have changes themselves, from things such as how their endowments get taxed to new accountability issues to make sure their graduating students are earning good money when they get out into the workforce.
Rath: How will this affect people, say, at the lower end of the income ladder?
Kerr: It’s going to have dramatic effects on them. A lot of those people who are at that lower income level currently rely on a lot of what I like to call “safety net payment plans” that are available with federal student loans. These can be any one of the many types of income-based repayment plans that are out there, and even the SAVE repayment plan, which was introduced under the prior administration.
They had a lot of protections, and a lot of those things are going away, as well as a renewed enforcement of the repayment of student loans, things such as being reported to the credit bureau report if you’re late, being able to garnish your wages if you are not making any payments, taking money right out of your tax refund and, believe it or not, even taking a portion of your social security check, if that’s all you have. A lot of those activities are starting to reengage and can really affect people with limited income.
Rath: Let’s talk about the shift toward private lenders. Private loan programs have a reputation for being predatory toward students. Federal interest rates are capped, but private loans have high interest rates and a lack of borrower protections. How is this going to affect the typical borrower?
Kerr: What happens today with a lot of the loan programs that are out there — specifically, the Graduate PLUS Loan, which borrowers use to pay for graduate school, as well as what’s called the Parents PLUS Loan, which parents use to pay for undergraduate students — those programs, today, don’t really have caps on them.
They also don’t do what I call a traditional credit process. They’re very easy to obtain. Everybody who gets them gets the same interest rates. With the caps and the limits — and even the elimination of some of those programs — families are going to have to turn more towards private student loans to make up for these funding gaps.
Private student loans rely heavily on income and credit to determine eligibility and, most importantly, the interest rate you get. With private loans, you could get interest rates as low as 3% fixed to as high as 15% fixed, so it can definitely have an impact if they can’t even get access to the loans or get approved because they have credit issues. Or, if they do get approved, then they’re finding they’re getting higher interest rates, which can really make college more costly for that particular family.
Rath: You work directly with families navigating the system every day. I’m curious what you’re hearing from people as they’re trying to make sense of this.
Kerr: Yeah, I do work with families every day. There’s definitely, I hate to say, a little bit of panic about how they’re going to be able to afford college in the future. I have seen what I like to call “price sensitivity” in families really increasing over the last five years or so. They’ve started to look at more state schools and community colleges.
I think with these changes, that’s really going to continue to accelerate families looking more at those cheaper cost options because they’re going to be worried they can’t afford it or get access to the funds. And if they do [get access to the funds], they may be getting higher rates than what was available in the past.
Rath: Beyond that, looking at lower-cost options, do you have a sense of how many people this would mean might not be able to afford going to college at all?
Kerr: That’s really hard to say. I think you’re going to see a bigger impact on the graduate level at first — the elimination of the federal Grad PLUS program, and then putting caps on how much you can borrow. That’s where I think we can see a dramatic decrease in people going to college.
As things start to roll out, I think you’ll see it more and more on the undergraduate level.
Rath: How will this affect students who are in school right now, or, for instance, families that might have one kid in college right now and another one soon to be there?
Kerr: The ones who have somebody who’s in school right now, there are some kinds of grandfathering clauses that are going on. So, for example, with the PLUS Loan — which parents use to pay for undergraduate school for their children — that’s going to have a cap of $20,000 per year going forward.
Currently, there is no cap, so they’re going to grandfather that in if you have an existing PLUS Loan. You can get three more years of that uncapped borrowing potential because your child is already in the system and going through it to ensure that they can get out and complete at least their undergraduate degree.
In the case where you have multiple kids, you have one who’s in school now, and you have a second or third coming down the pipeline, I think what families are going to have to do is shop more about the price of the college upfront. They’re going to have to be realistic about how much money they have to spend on college and try to target colleges that give more financial assistance and more scholarships to bring that price down for them.
You can also really start to focus on your credit history, because their credit is going to determine the interest rate they get on that loan. So if you can get your credit in good shape — even as much as you can, start to get your student’s credit in good shape — that, in the long run, is going to help you get better interest rates, as well as help make college more affordable for you.
