Three Major Student Loan Developments This Week Raise Alarms

It’s been a whirlwind week for student loan borrowers as major developments have happened on multiple fronts. In Congress, Senate Republicans advanced legislation that would completely reshape the federal student loan system.

At the Department of Education (ED), Trump administration officials pressed ahead with a process to make significant changes to the Public Service Loan Forgiveness (PSLF) program. Meanwhile, hundreds of thousands of borrowers in default on their federal student loans may soon be facing draconian consequences as wage garnishment is set to begin.

Here's a breakdown of these events and what student loan borrowers should know about them.

“One Big, Beautiful Bill” passes Senate with major implications for student loan repayment

The Senate on Tuesday passed the massive reconciliation bill, dubbed the “One, Big Beautiful Bill” by Republicans to mirror President Trump’s language. The bill would make substantial changes to federal programs, including Medicaid and student loans. Some of the major student loan program changes include:

• A repeal of the Income-Contingent Repayment (ICR), Pay As You Earn (PAYE), and Saving on a Valuable Education (SAVE) plans in 2026. Income-Based Repayment (IBR) would be preserved for current borrowers in repayment.
• Borrowers who take out new federal student loans starting next year would be limited to just two repayment plans: a Standard plan and a new income-driven plan called the Repayment Assistance Plan (RAP) that would have a 30-year repayment term.
• Parent PLUS borrowers would be blocked from income-driven repayment (IDR) and student loan forgiveness unless they consolidate their loans within a year of the bill’s passage. 
• New students would have severe borrowing restrictions. The Graduate PLUS program would be nixed entirely, Parent PLUS borrowers would face a severe lifetime cap, and modestly increased limits on Stafford loan borrowing would be unlikely to fully cover the costs associated with many graduate and professional degree programs. 
• Updated regulations governing the Borrower Defense to Repayment and Closed School discharge programs, designed to make it easier for borrowers to qualify for relief, would be delayed for a decade.
• The budget for the Consumer Financial Protection Bureau (CFPB), which oversees the student loan industry (as well as the entire financial services sector), would be cut by 70% or more, while funding for student loan servicers would increase.

Student loan borrower advocacy groups were highly critical of the reforms. The cuts would lead “to higher student loan bills, narrow repayment options, and added roadblocks for students whose school closed or defrauded them,” said the National Consumer Law Center (NCLC) in a blast email to supporters on Wednesday. The cuts to the CFPB “would gut the nation’s top consumer watchdog and make it easier for banks, payment apps, and other financial companies to break the law and take advantage of ordinary people.”

“Senate Republicans chose to deliver tax cuts to billionaires on the backs of students and working families seeking relief from the rising costs of healthcare, food, and education across this country,” said the Student Borrower Protection Center (SBPC) in a statement on Tuesday. “Today’s vote is a crushing blow to the millions of Americans already struggling to cover the skyrocketing costs of college and will push higher education even further out of reach while also pushing millions even further into debt.”

Department of Education proceeds with rule changes For PSLF

The Senate bill made no significant changes to Public Service Loan Forgiveness (PSLF), a program that offers student loan forgiveness after the equivalent of 10 years of qualifying payments while a borrower works for nonprofit organizations or government. But separately, the Department of Education moved forward this week with negotiated rulemaking to substantially change the rules for the PSLF program.

Department officials held a two-day negotiated rulemaking session this week as part of their efforts to implement President Trump’s March executive order that would limit student loan forgiveness under PSLF for organizations that engage in activities that the administration deems to have a “substantial illegal purpose.” 

Trump had argued that the changes are necessary to “protect, preserve, and defend the Constitution and our national security, which includes ending the subsidization of illegal activities, including illegal immigration, human smuggling, child trafficking, pervasive damage to public property, and disruption of the public order, which threaten the security and stability of the United States.”

The proposed rules, which were unveiled last month, would block PSLF to any public or nonprofit organization that engages in specified activities. The broad language would appear to cover organizations, as well as state or local governments, that facilitate gender-affirming healthcare to transgender youth, “facilitate” the violation of immigration laws, or engage in “illegal discrimination” (which some critics have suggested would be a cover to target organizations and state or local governments that have DEI initiatives). 

Student loan borrower advocacy groups have said that the sweeping attempts by the Trump administration to rewrite the student loan forgiveness rules for PSLF without actual legislative changes by Congress would be illegal. And they have characterized the Department of Education’s rulemaking process (which is required under federal law for agencies to change regulations) as essentially a kangaroo court intended to simply rubber stamp President Trump’s earlier executive order.

“ED representatives sidestepped, dismissed, or outright ignored negotiators’ questions and concerns” during negotiated rulemaking hearings this week, said a key SBPC official who observed the proceedings. “That’s because this isn’t a negotiation—it’s an exercise in gaslighting. ED is proposing action that exceeds the Secretary’s statutory authority and likely violates the U.S. Constitution—all the while telling negotiators to fall in line.”

Student loan wage garnishment could begin this month

Meanwhile, the Department of Education is set to begin garnishing the wages of up to two million federal student loan borrowers as soon as this month. The department announced the resumption of collections activity against defaulted federal student loan borrowers this spring, with administrative wage garnishment a key element of the government’s vast collections powers.

“American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies,” said U.S. Secretary of Education Linda McMahon in a statement in April. “Going forward, the Department of Education, in conjunction with the Department of Treasury, will shepherd the student loan program responsibly and according to the law, which means helping borrowers return to repayment—both for the sake of their own financial health and our nation’s economic outlook.”

More than five million federal student loan borrowers are currently in default. The department estimates that figure could double by the end of the year.