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Key Takeaways
- Federal student loans are undergoing significant changes in 2025, with updates to repayment plans and income-based options.
- Borrowers may be forced to switch repayment plans, which could result in higher monthly payments.
- Income-driven repayment (IDR) plans are still in flux, and borrowers should know that switching plans may impact their payment amount and long-term forgiveness eligibility.
- Helping clients navigate their choices can provide value, reduce stress, and ultimately save money in the long run.
Managing student loan debt in 2025 could be especially tough for federal borrowers. Interest rates are near-record highs and Income-Driven Repayment (IDR) plans are in flux. A Consumer Financial Protection Bureau (CFPB) survey revealed that 63% of borrowers said they had experienced difficulty making their student loan payments.
Furthermore, the legality of the new SAVE plan is in court; if struck down, borrowers will need to switch to a more expensive option. Changing plans could increase payments, as updated income documentation might raise monthly bills. And though borrowers can join other IDR plans, current litigation has limited the processing of forgiven loans to just one plan: the Income-Based Repayment (IBR) plan.
During these uncertain times, many feel stressed about the state of their student loans. Here’s my advice.
What I’m Telling My Clients
There are a few steps I’m telling clients with significant federal loans to take:
1. Check Eligibility for IDR Plans
There are currently three IDR plans from which borrowers can choose: Income-Based Repayment, Pay As You Earn, and Income Contingent Repayment. Each plan’s payment is based on a different percentage of income, and the repayment periods before remaining loans are forgiven also vary. The disbursement date of a borrower’s loans can also make a borrower ineligible for certain plans.
2. Calculate Your Payment
Borrowers can input their Adjusted Gross Income (AGI) into calculators available on studentaid.gov to find their payments under IDR plans and traditional options like the standard plan, which pays off loans in full. If an IDR plan is the only feasible option for their budget, they should pursue it.
Tip
Calculate federal student loan repayment options with the Federal Student Aid simulator.
3. Weigh the Benefits of Refinancing
If the loan is paid in full, it should be paid under the most favorable terms. Private lenders may offer more competitive rates, and thankfully, they often show borrowers potential refinancing rates without requiring a hard pull of their credit. Most private student loans also have no origination fees or closing costs, meaning borrowers can refinance multiple times if it benefits them to do so.
The Bottom Line
The coming months may bring confusion and higher costs for student loan borrowers. With rising interest rates and changes to repayment plans, it’s important for clients to stay informed. By helping clients stay proactive and updated on these changes, advisors can guide them through the shifting landscape and find the most cost-effective repayment strategies that suit their needs.
