Navigating Federal Student Aid Changes: Buyouts, Delays, and the Future of Repayment

The landscape of federal student aid is constantly shifting, presenting challenges and uncertainties for borrowers and students. Recent developments, including staff buyouts at the Federal Student Aid (FSA) office, delays in application processing, and evolving repayment plan options, require careful attention and proactive planning. This article breaks down these changes, offering insights and guidance for navigating the complexities of federal student aid.

Impact of FSA Staff Buyouts

Reports indicate that approximately 10% of the FSA workforce has accepted buyouts. This reduction in staff raises concerns about disruptions in the processing and distribution of financial aid to students. Experts warn that fewer workers handling financial aid applications could lead to delays in students receiving their funds. In 2024, roughly 1,444 FSA employees administered the distributions of financial aid like scholarships, grants, and loans. The departing employees reportedly include workers in the borrower defense division, ombudsman’s office, and information technology, as well as budget professionals.

The buyouts come as the Trump administration looks to reduce the size of the government - warning of “large-scale” reductions at federal agencies. Experts are concerned that experienced federal employees leaving the Department of Education (ED) would have negative ramifications for students, especially when it comes to students applying for loans and grants to go to college. The FSA manages a nearly $2 trillion federal student loan portfolio. Elon Musk’s Department of Government Efficiency reportedly floated the idea of artificial intelligence (AI) helping students with their Free Application for Federal Student Aid (FAFSA) forms and financial aid questions, which student success experts warn would short students on valuable assistance. Bloomberg Law reported that FSA executives are preparing for further reductions to their workforce.

How Students Can Get Ahead of Financial Aid Disruptions

In light of potential disruptions, experts recommend that students take proactive steps to manage their financial aid. Karen McCarthy, vice president of public policy and federal relations with the National Association of Student Financial Aid Administrators (NASFAA), suggests that students should continue to fill out their FAFSA forms and submit them early. She also advises students to check in with their financial aid offices for updates and guidance.

It is important not to panic over potential changes. Students should focus on completing their FAFSA forms accurately and on time to ensure they are considered for all available aid.

Read also: Understanding Student Loans

FAFSA: Your Gateway to Financial Aid

The FAFSA is a crucial form for students seeking federal, state, and school-based financial aid, including student loans. The FAFSA for the 2026-2027 academic year is available at studentaid.gov. To complete the FAFSA, students and their parents will need to gather essential documents, including Social Security numbers, tax returns, and bank statements.

Completing the FAFSA as early as possible is highly recommended, as some aid is awarded on a first-come, first-served basis. It is also important to be aware of state and school-specific deadlines, which may be earlier than the federal deadline. Note that there’s still time to submit the FAFSA for the current 2025-2026 school year. You have until June 30, 2026. Recent data on FAFSA submissions shows some students and their parents and guardians are doing just that. The National College Attainment Network (NCAN) estimates, as of Feb. 14, that 33% of the class of 2025 has completed their FAFSA forms. That’s an increase of 6.4% compared to this time in 2024 and 13% compared to this time in 2023.

Income-Driven Repayment (IDR) Plan Adjustments

Significant changes are underway for income-driven repayment plans, which base monthly payments on a borrower's income and family size.

SAVE Plan Sunset

The Saving on a Valuable Education (SAVE) income-driven repayment (IDR) plan, launched in 2023, is ending. Though the settlement is pending court approval, that's pretty much a formality. The announcement effectively confirms that SAVE is ending. The ED has stated borrowers will have a “limited time” to switch to a new repayment plan, but it hasn’t announced what the exact timeline will be. Borrowers currently enrolled in SAVE will need to transition to a new payment plan. According to the ED, borrowers will have a “limited time” to switch to a new repayment plan. It is advisable to start comparing replacement payment options and budgeting for potentially higher monthly payments under a new plan.

IDR Plan Phase-Out

All current income-driven repayment plans, except Income-Based Repayment (IBR), will be sunset by July 1, 2028, as part of President Donald Trump’s One Big Beautiful Bill Act (OBBBA). Here are the IDR plans available for the time being and in the future: The existing IBR plan will remain an option for current borrowers, but only for loans disbursed before July 1, 2026. It won’t be available for new loans after that time. The IBR application was recently updated, so applicants no longer have to show a “partial financial hardship” to apply, making it more accessible to borrowers.

For student loans taken out after July 1, 2026, the new Repayment Assistance Plan (RAP) and a simplified standard plan will be the only repayment options available. RAP will be the only income-based plan and will require 30 years' worth of payments before loan forgiveness. Income-Contingent Repayment (ICR) and Pay As You Earn (PAYE) are still available to current borrowers with loans taken out before July 1, 2026, but those plans will be phased out by July 1, 2028. The ED recommends using its Student Loan Simulator to compare what payments would be like under different plans.

Important Note about SAVE and Loan Forgiveness

Borrowers who qualify for forgiveness while still enrolled in SAVE must apply to switch to another income-driven repayment plan before their loans can be discharged. But current processing delays mean borrowers could be stuck in SAVE even after reaching forgiveness eligibility. Forgiveness will still be applied after the plan change is processed, but borrowers should keep track of qualifying payments and continue making required payments (or ask about forbearance) until the loan balance is officially discharged.

Application Processing Delays

Student loan borrowers have faced roadblocks in the processing of their applications for an income-driven repayment plan or PSLF Buyback. The PSLF Buyback program enables borrowers to earn forgiveness credits for months they didn’t pay, for example when their loan was in forbearance. At the end of December, more than 800,000 federal student loan borrowers remained in a backlog of applications for affordable repayment plans or debt forgiveness.

Here’s a breakdown for the number of applications received, decided, pending and discharged between Dec. 1-31.

IDR applications:

Received: 258,465.
Decided (approved or denied): 277,131.
Discharged: 3,400.
Pending (as of Dec. 31): 734,221.

PSLF Buyback applications:

Received: 5,090.
Decided (approved or denied): 1,930.
Discharged: 9,400.
Pending (as of Dec. 31): 83,370.

Although the ED agreed in October to resume forgiveness processing for borrowers on ICR, PAYE, SAVE and IBR plans, it is currently only processing forgiveness for IBR borrowers. That means many borrowers who are otherwise eligible for forgiveness are still waiting.

What Borrowers Can Do About IDR and PSLF Delays

Unfortunately, there isn’t anything borrowers can do to make their applications move faster. While delays are frustrating, they won’t erase eligibility for a new IDR or loan forgiveness. As long as a borrower has taken the required steps and qualifies for forgiveness, the ED is expected to apply that relief when the application is finally processed.

Here’s what you should do while waiting:

Make sure you’ve submitted required applications as soon as you're eligible. Forgiveness can’t be processed without an application on file, even if approval takes time.
Continue making payments until your loan’s balance is discharged to avoid default. The AFT lawsuit affirmed that the ED must refund any payments made by borrowers after they had already reached forgiveness eligibility.
Ask about forbearance if payments aren’t affordable. This can help prevent missed payments while waiting, even if interest may still accrue.
Keep records. An IDR loan forgiveness tracker previously available on studentaid.gov has been removed and isn’t expected to return.

Wage Garnishment Delay

In early January, the Education Department (ED) began notifying student loan borrowers in default that involuntary wage garnishment would resume. On Jan. 16, the ED announced all involuntary collections on federal student loans, including garnishment, would be temporarily delayed. This delay includes the Treasury Offset program (TOP), which intercepts federal payments like tax refunds and Social Security. The ED did not provide a date for collections to resume.

While this delay does buy some time for student loan borrowers who are in default, it's important to realize that the possibility of having wages garnished or tax refunds withheld isn't going away. Borrowers can use this time to explore ways to get back on track. A federal student loan is considered in default after 270 days of missed payments, and at that time the ED or agencies acting on its behalf can order an employer to withhold up to 15% of a borrower’s after-tax wages to put toward the debt. If you aren't sure of your loans' status, log on to your account at studentaid.gov.

Options for Defaulted Borrowers

Defaulted borrowers have options to regain good standing on their loans. Loan consolidation combines multiple loans into a single new loan, essentially giving the borrower a clean slate. Loan rehabilitation involves working with a servicer or the Default Resolution Group to establish a temporary payment plan. After nine on-time payments, loans are returned to good standing, removing the default from your credit report. ED's announcement notes that borrowers who have already rehabilitated their loans will now get a second chance - previously, borrowers only had one shot at rehabilitation.

The One Big, Beautiful Bill Act (OBBBA)

The OBBBA, signed into law on July 4, 2025, will significantly impact current and future student loan borrowers.

Forgiveness Taxable Again

The OBBBA did not extend temporary tax relief for student loan amounts that are forgiven under certain IDR plans. Students who receive student loan forgiveness on or after January 1, 2026, may be required to report the cancelled debt as taxable income on their federal (and possibly state) tax return, resulting in a student loan forgiveness tax bomb. This change does not apply to PSLF forgiveness. Also, it will not apply to borrowers who were eligible for forgiveness in 2025 but did not receive it until 2026 due to processing delays.

Changes to Loan Programs

PLUS loans for graduate and professional students will no longer be available for new borrowers after July 1, 2026. Students with existing Grad PLUS loans will be able to continue borrowing under their current terms for a period of time. New grad and professional students will be subject to federal loans with lower borrowing caps. Parent PLUS loans aren’t being eliminated, but they will have significant reductions in borrowing limits and won’t be eligible for income-driven repayment plans. To remain eligible for IDR and loan forgiveness, current Parent PLUS borrowers must consolidate their student loans before July 1, 2026 and enroll in a repayment plan. The ED’s federal student aid office recommends applying for the consolidation loan before April 1, 2026, to ensure it is disbursed by July 1.

Limits to Forbearance and Deferment

Borrowers taking out new federal student loans after July 1, 2027 will face stricter guidelines for forbearance and deferment. Borrowers will no longer be able to qualify for a loan deferment because of unemployment or economic hardship.

Borrower Defense to Repayment

If a school defrauded or misled a student, they may be eligible for federal student loan discharge through borrower defense to repayment. This program allows borrowers to seek the discharge of federal student debt if their school violated certain state laws or engaged in misleading or deceitful practices or fraud. The borrower defense program has been around since 1994 but gained traction in 2015 when for-profit Corinthian Colleges shut its doors due to a lack of federal funds, only to face multiple lawsuits.

Applying for Borrower Defense

Anyone who feels their school misled them can apply for borrower defense to repayment. Some schools may make you feel an urgency to enroll. If you felt pressured to make a written commitment to attend a school quickly, this detail might strengthen your case. Department of Education (via StudentAid.gov). Department of EducationFederal Student Aid Information Center P.O. You may also need to provide documentation to verify your identity and support your claim.

When seeking borrower defense, you can request a forbearance - or postponement - of your monthly loan dues while your application is under review. To qualify for the reprieve, your federal loans must not be in default. Just be aware that forbearance allows interest to accrue onto your outstanding loan balances.

The Future of Borrower Defense

The Trump Administration’s recent decision to not defend the Education Department’s proposed rule changes to borrower defense could be a signal that getting a discharge could be challenging. Given the legal limbo, the Education Department can’t apply the rule changes when evaluating borrower defense applications. However, it’s still reviewing and accepting new borrower defense applications under the preexisting (read: more stringent) rules. You may also need to wait longer for a response, because as of early 2025, about a tenth of the Federal Student Aid office’s staff accepted buyout offers from the Trump administration. That included employees in the division that handles the borrower defense program.

Voluntary Separation Incentive Payment (VSIP) Authority

The Voluntary Separation Incentive Payment Authority, also known as buyout authority, allows agencies that are downsizing or restructuring to offer employees lump-sum payments up to $25,000 as an incentive to voluntarily separate. When authorized by the Office of Personnel Management (OPM), an agency may offer VSIP to employees who are in surplus positions or have skills that are no longer needed in the workforce who volunteer to separate by resignation, optional retirement, or by voluntary early retirement, if approved. By allowing employees to volunteer to leave the Government, agencies can minimize or avoid involuntary separations through the use of costly and disruptive reductions in force (RIFs). As with any incentive, when approved by OPM, this authority is used at the discretion of the agency.

Navigating the Changes: Key Takeaways

Stay informed: Keep abreast of the latest developments in federal student aid policies and programs.
Complete the FAFSA early: Submit the FAFSA as soon as it becomes available to maximize your chances of receiving aid.
Explore repayment options: Understand the different income-driven repayment plans and choose the best option for your financial situation.
Take action if eligible: If you believe you were defrauded by your school, consider applying for borrower defense to repayment.
Seek guidance: Consult with financial aid professionals for personalized advice and support.

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