Student loans have become a critical part of higher education financing, allowing millions of students to pursue their academic and career goals. However, as tuition costs rise and student debt reaches unprecedented levels, the burden of loan repayment is becoming an increasing concern for borrowers across the country. Aware of this, President Biden has made surprising decisions regarding loan repayment programs before the start of 2025.
The debates surrounding student loans continue
The ongoing debate about student loans centers around the balance between providing access to higher education and the financial burden placed on borrowers. Advocates for reform argue that the rising cost of tuition and the increasing levels of student debt are unsustainable, leaving graduates struggling with repayment for years or even decades.
Critics, however, argue that student loans are necessary for ensuring that higher education remains accessible to all and that debt forgiveness or cancellation could create moral hazard and unfairly burden taxpayers. The conversation also includes questions about the effectiveness of income-driven repayment plans, the role of for-profit colleges, and the responsibility of both the government and institutions in addressing the crisis.
As more students take on loans to pursue degrees, finding a solution that supports both education and long-term financial well-being remains a challenging and divisive issue. A further consideration is the amount of preassure students feel to get a degree to have a chance at entering the workforce. The conversation of student loans includes considerations for the need to reform the entire education and work system to make room for more opportunities for young adults to support themselves without needing a college education.
The current outlook for student loans in 2025
With the new Trump administration set to take office in 2025, many changes are expected for students regarding loan repayments. As one of his last policy making decisions in office, President Biden has launched a race against time to reinstate two previous student loan relief programs. His efforts proved successful, and starting next week, the PAYE and ICR programs will be available once again.
The fate of both the SAVE and PSLF student loan programs are expected to be phased out with the return of Trump to office. Trump’s return, coupled with the legal battle that suspended the implementation of SAVE, has left the beneficiaries of the program in debt limbo. However, the reactivation of PAYE and ICR programs might just be the lifeline students need before President Biden exists the White House.
What are the options for students?
The ICR, formally known as the Income-Contingent Repayment, plan is one of the oldest Income-Driven Repayment (IDR) plans and also one of the costliest. It provides two payment options, allowing borrowers to choose the one that results in the lowest monthly payment based on their financial situation.
The first option adjusts the payments you would make under a standard 12-year repayment plan based on your individual circumstances, using a formula that takes multiple factors into account. The second option requires you to pay 20% of your discretionary income, divided by 12 to determine your monthly payment.
Two groups of borrowers who could benefit from ICR are Parent PLUS borrowers and those whose debt is relatively small compared to their income. However, if you’re currently enrolled in the SAVE program and are nearing debt forgiveness, this plan could be counterproductive for you.
If you’re nearing forgiveness under SAVE, the Pay As You Earn (PAYE) plan is a better alternative. While more expensive than SAVE, it’s still more affordable than ICR. Forbes estimates that SAVE beneficiaries pay about $135 a month, compared to over $700 with the standard plan. Additionally, PAYE offers total loan forgiveness if you have made timely payments for 20 years.
Student loan programs are not the only financial programs which are expected to change in 2025. Changes to Social Security are also to be expected, putting both the youth and the retired in a precarious position for the new year.
