Understanding the Rising Tide: Factors Influencing Student Loan Payment Increases

The landscape of student loan repayment is complex and constantly evolving. Recent legislative proposals, policy changes, and economic factors are all contributing to potential increases in student loan payments for borrowers. This article explores the reasons behind these increases, examining the impact of proposed legislation, changes to income-driven repayment (IDR) plans, and the challenges borrowers face in navigating the repayment system.

Proposed Legislative Changes and Their Impact

Several legislative efforts have aimed to reform the federal student loan program, with varying potential impacts on borrowers' monthly payments.

The College Cost Reduction Act

In January 2024, the College Cost Reduction Act (H.R.6951) was introduced. Analysis indicated that this proposal could significantly increase monthly student loan payments for many borrowers. For the average borrower, the House Republican proposal would increase monthly student loan payments by almost $200. A borrower with average income for a recent bachelor’s degree graduate would see payments increase by $193 per month.

For low-income borrowers, the House Republican proposal requires monthly payments at a lower income threshold, thereby protecting less income for basic needs. For borrowers whose incomes are persistently below 150% of the federal poverty level ($23,475 for a single person), the House Republican proposal is a lifetime sentence of student loan debt. While this borrower could stay in the plan with a $0 monthly payment, they would not receive the plan’s interest subsidies, and their balance would balloon. Because the plan includes no “light at the end of the tunnel”-even after decades of payments-this borrower could be in debt for life.

This borrower’s income does not reach above 150% of the federal poverty level until year 26. If the borrower makes no payments until that time, their balance more than doubles from $16,000 to $32,839. The borrower never finishes paying off the original balance and accrued interest, but would reach the equivalent of standard repayment total at the end of year 37. These outcomes are dependent on consistent annual income growth, which may not be reliable for many low-wage workers.

The Working Families Tax Cuts Act

The Department of Education issued a Notice of Proposed Rulemaking (NPRM) aimed at reducing the cost of higher education and simplifying federal student loan repayment, as outlined in President Trump’s Working Families Tax Cuts Act (the Act). Last summer, Congress passed necessary changes to the federal student loan program that will drive down college tuition by equipping institutions with tools to address overborrowing, implementing commonsense loan caps for graduate education programs, and streamlining repayment options for borrowers. The NPRM is the next step in implementing these changes.

The Act eliminates the Grad PLUS program, which allowed unlimited borrowing and contributed to rising graduate tuition, and the proposed rule introduces commonsense annual and aggregate loan caps for graduate and professional programs. Graduate student borrowing comprises a growing share of annual, aggregate federal student loan disbursements and represents the majority of the balances in income-driven repayment plans, further exacerbating the burden of student debt on borrowers and taxpayers. These new caps will compel colleges and universities to prioritize students, and incentivize institutions to reduce tuition and fees, making higher education more affordable and preventing students from being burdened with unmanageable debt after graduation. The proposed rule also allows institutions to establish program-level loan caps below the statutory limits. These stricter borrowing limits would provide colleges and universities with the authority to set appropriate loan caps to the true cost of an academic program, helping to prevent overborrowing in programs with lower earnings or higher default rates.

To reduce complexity and improve the borrower experience, the proposed rule phases out the myriad of confusing repayment plans and introduces simplified choices for borrowers: a newly-created tiered, standard repayment plan and an income-driven repayment plan. The tiered, standard plan offers fixed terms-10, 15, 20, or 25 years-based on the loan balance, giving borrowers with higher debt lower payments and more time to repay. The new income-driven repayment plan, also known as the Repayment Assistance Plan, aligns repayment with a borrower’s ability to pay while preventing low-income borrowers’ loan balances from growing despite their making payments. Borrowers who make on-time payments are shielded from runaway interest and able to make steady progress toward reducing their principal. The proposed rule also offers borrowers a second opportunity to rehabilitate a defaulted loan, helping them get back on track with repayments and removing the loan from default status. Before the passage of the Act, borrowers were only allowed a single chance at rehabilitation.

Beginning in July 2026, the Act limits new graduate students to $20,500 in federal student loans per year (with a $100,000 aggregate limit) and new professional students to $50,000 in federal student loans per year (with a $200,000 aggregate limit). Previously, graduate students could borrow up to the cost of attendance, which has contributed to steep increases in graduate school tuition. The term “professional student” as used in the Department’s NPRM is intended solely to distinguish programs that would be eligible for higher loan limits, as required by the Act. The designation, or lack thereof, of a program as “professional” does not reflect a value judgment by the Department regarding whether a borrower graduating from the program is considered to be a “professional.” No programs previously designated as “professional” lost that designation as a result of this rulemaking.

Changes to Income-Driven Repayment (IDR) Plans

IDR plans have long been a critical tool for borrowers struggling to afford their student loan payments. However, changes to these plans can significantly impact monthly payment amounts.

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The Role of IDR Plans

The income-driven repayment (IDR) system was created in the early 1990s in response to a growing problem: too many federal student loan borrowers couldn’t afford their monthly payments under “standard” loan repayment plans. This meant many borrowers faced a monthly choice between making their student loan payment and paying other bills to cover their basic needs. That’s where IDR plans came in: they adjust a borrower’s monthly payment by their income and family size to enable borrowers to stay current on their loans and avoid the devastation of default-even in times of financial hardship. Borrowers enrolled in an IDR plan default at much lower rates than those in non-IDR plans.

Because lower income-based monthly payments can extend a borrower’s repayment term, IDR plans also provide a key protection: a light at the end of the tunnel. Instead of requiring borrowers to remain in the repayment system indefinitely, IDR plans discharge any debt that remains after a set number of income-based monthly payments (a maximum of 25 years’ worth, depending on the plan). Without a discharge provision, many persistently low-income borrowers would be stuck in the repayment system indefinitely without hope of ever repaying their debt.

These two components-a more affordable monthly payment that adjusts based on income and family size, paired with a light at the end of the tunnel after a certain number of monthly payments-have been accepted as core tenets of IDR design for more than three decades and are reflected clearly in multiple instances of statute. The House Republican proposal radically departs from this approach and could leave many borrowers to face a lifetime debt sentence. The House Republican plan also takes the regressive approach of treating lower-income borrowers more punitively than higher-income borrowers. Unlike other IDR plans, it would require a borrower whose income is so low that their monthly payment amount is $0 to make at least a $1 payment each month to keep their balance from ballooning.

Repayment Assistance Plan (RAP)

One major change Congress implemented with RAP is the elimination of what's called negative amortization, or the possibility for loan balances to grow when interest accumulates faster than monthly payments can cover. The impact of the new plan will depend on the borrower's specific financial circumstances.

A household income of $81,000 will pay $440 monthly for a loan on RAP, versus only $36 on the Saving on a Valuable Education (SAVE) plan. "Scheduled monthly payments under RAP are comparable to historical norms on IDR plans," like Pay as You Earn (PAYE).

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Streamlining Repayment Options

For loans taken out after July 1 of this year, borrowers will only have two repayment plans to choose between: a new standard plan (which is different from the current standard plan) and one income-driven repayment plan. Some experts believe streamlining the repayment options will lead to less confusion among borrowers.

The Resumption of Student Loan Payments After the Pandemic Pause

The COVID-19 pandemic led to a significant pause in student loan payments, providing temporary relief to millions of borrowers. However, the resumption of payments has presented new challenges and potential for increased financial strain.

The End of Forbearance and the Rise in Delinquencies

After a pause that began March 2020, student loan payments resumed for most borrowers in October 2023, followed by a one-year on-ramp period before missed payments were reported to credit bureaus. Once the on-ramp ended, delinquency rates jumped, since all borrowers who had fallen behind on payments since October 2022 were reported as past due at the same time.

As of October 2024, the government began reporting past-due student debt payments to credit bureaus again. The number of officially delinquent borrowers naturally surged as all past-due borrowers were reported at once. But the share of people overdue on their loans did not revert to pre-pandemic levels, they are now higher than pre-pandemic levels. If current trends continue, student loan defaults could soon reach record highs. The Department of Education projects the default rate could climb to as much as 25 percent.

Factors Contributing to Delinquency

The period since the start of the pandemic has been a tumultuous time for student loan borrowers, and other factors might be affecting their repayment behavior. Beyond the payment pause itself, many other aspects of debt repayment changed. At the same time, the Department of Education has announced that they will resume collections efforts on defaulted debt. How might these borrowers adjust their financial behavior to accommodate garnishment? It is hard to draw firm conclusions without understanding why more borrowers are overdue today-are student borrowers more financially strained, or are they having trouble navigating the post-COVID policy changes?

Findings suggest that part of the surge in overdue borrowers above historical levels is driven by factors other than financial hardship, such as administrative difficulties. If it is true that many households have the ability to repay their debts, then the number of overdue borrowers may return to historic levels in the near future, and these borrowers may not be affected by garnishment. However, the number of overdue borrowers will probably surge again with the end of IDR forbearance, and a portion of those borrowers may also be “administrative” delinquencies rather than hardship delinquencies.

Comparing Delinquency Rates

To assess how overdue borrowers today are different than overdue borrowers before the pandemic, we compare the fraction of borrowers who are overdue, by income group, in 2019 to the fraction who are overdue in the 12-month period ending June 2025. Figure 1 shows that a smaller share of the lowest-income borrowers were overdue in 2025 than in 2019, and a higher share were overdue in all other income groups , with the highest-income borrowers showing the greatest increase . Part of this may be driven by IDR borrowers still being in forbearance due to court action around the Biden administration’s SAVE plan. IDR borrowers tend to have lower incomes, and it is likely that without this forbearance many of these lower-income borrowers would have missed payments by June 2025 along with the rest of the current wave. However, this does not explain why the share of the highest-income borrowers who are overdue has gone up by almost 50 percent, from 10.7 percent in 2019 to 15.6 percent in 2025.

Financial Security and Debt Burden

Is this surge in overdue payments among higher-income borrowers driven by a decrease in their financial security? If borrowers are less financially resilient today than pre-pandemic, that could explain an increase in overdue borrowers. First, we compare borrowers’ monthly student debt payments to their discretionary income, which is the average amount of money each household uses for discretionary spending (expenditures other than rent, debt payments, and necessities like medicine and groceries) and savings. The larger a borrower’s monthly student debt payments are relative to their discretionary income, the more burdensome those payments are likely to be. Figure 3 shows that, among overdue households, student debt payments are less burdensome today than in 2019. To cover their debt payment, the typical low-income household who was overdue needed to spend the equivalent of 61 percent of their discretionary income in 2019 versus 33 percent in 2025. Other income groups also saw marked decreases.

Missed Payments on Other Debts

Another way to assess whether the composition of overdue borrowers has changed is to look at missed payments on debts other than student loans such as credit cards, auto loans, or mortgages. A household having trouble paying its student loans is probably having difficulty with other debts as well. If more households that are overdue on student debt are current on their other debts as of 2025, it would suggest that this cohort of overdue borrowers is in a better financial position than past cohorts. Figure 4 shows the share of households in each income bin that were also at least 60 days past due on some debt that is not a student loan in the last 6 months of each sample period. The missed payment rate on non-student debt is high in both years, with rates higher for higher-income borrowers. These higher delinquency rates for higher income households are somewhat counterintuitive and are due to lower-income households holding less debt generally. A household can’t be delinquent on a debt it doesn’t have, and higher-income borrowers are more likely to qualify for and have other debts like credit cards, auto loans, and mortgages. More relevant for our assessment is the fact that non-student debt delinquencies are markedly lower for all income groups. It is much more likely in 2025 for a borrower to be overdue on their student loans, but current on all other debts.

Awareness of Payment Resumption

Another way to assess whether borrowers might be unaware that payments were supposed to resume is to look at when borrowers last made a payment. If a borrower made some payments after the end of COVID forbearance and then stopped making payments, that would suggest that they knew payments had resumed but were unable to continue making payments due to financial hardship. If most overdue borrowers had resumed making payments at some point after October 2023, it would be much harder to believe a story where current delinquencies are driven by borrowers not knowing that the payment pause ended. Figure 5 shows how many overdue borrowers never made payments after the end of the COVID pause in October 2023. Even among the highest-income borrowers who were the most likely to have made a payment since the end of the pause, a majority (54 percent) never resumed payments.

Potential for Wage Garnishment

Whether recent delinquencies are driven by economic hardship or communication difficulties, borrowers that continue to be delinquent will eventually default on their loans. For federal student loans, default officially occurs once a borrower is 270 days past due. At that point, they may have up to 15 percent of their after-tax wages garnished. Historically, very few defaulted borrowers have had their wages garnished. In April, the Department of Education (ED) announced it would be resuming garnishment in May; however, the wave of delinquencies that started in October 2024 will not be classified as in default until late 2025 at the earliest.

We assess how burdensome garnishment might be for borrowers in our sample by estimating each overdue household’s garnishment amount (15 percent of take-home payroll income) and comparing it to the borrower’s average monthly budget allocation-savings, leisure spending, non-leisure discretionary spending, and non-discretionary spending. Figure 6 shows how households will have to adjust their budgets to account for the 15 percent drop in take-home payroll income. While many borrowers will be able to adjust without significant hardship, a significant portion will have to reduce their non-discretionary spending. This could lead to significant hardship and an increase in non-payment of other bills and debt obligations. Between 14 and 21 percent of households (depending on income group) will not have to adjust their spending at all-the income lost to garnishment is less than or equal to the amount the household adds to its savings every month. Roughly 65 percent of overdue borrowers might be able to reduce their leisure spending enough to leave their other spending untouched. Even those that will not have to decrease their non-discretionary spending will have to make significant adjustments. In each income group, the garnishment amount is equivalent to about 40 to 50% of discretionary income for the median (50th percentile) borrower household in that income group.

Other Contributing Factors

Loan Caps

Federal undergraduate loans taken out by students in their own names are not affected by new loan caps. Graduate PLUS loans, which allowed students to take out the full cost of tuition regardless of the amount, will no longer be available. Students pursuing graduate degrees will have new annual loan limits of $20,500 and lifetime limits of $100,000.

"Nursing programs and public health programs are now considered not professional and so you can borrow half as much as you could for 'professional' programs like law or medicine," Berkman-Breen said.

Parent PLUS Loans

According to government data, about 3.6 million people held Parent PLUS loans last year, totaling about $116 billion. Betsy Mayotte, founder of The Institute of Student Loan Advisors, suggests that families already on income-driven repayment plans for Parent PLUS loans should consider splitting up future loans between parents for additional college-bound children.

"It's mostly people who are attending very expensive programs, very expensive colleges, very expensive institutions, who might see their ability to borrow from the federal government somewhat constrained by this. And I do think, to an extent, that is a feature, not a bug," Cooper said. Others say that instead of universities dropping rates, they expect students to find other ways to fund education. "What's going to happen [is] individuals are going to go and seek private loans.

Loan Forbearance

For loan forbearance, the amount of time that borrowers can delay payment is shrinking. Current rules allow them to pause payments for up to a year at a time and up to three years total.

Strategies for Borrowers

Given the potential for increased student loan payments, borrowers should explore strategies to manage their debt effectively:

Understand Repayment Options: Familiarize yourself with the different repayment plans available, including standard, graduated, and income-driven plans.
Evaluate IDR Plans: Determine if an IDR plan is the right fit for your financial situation, considering the potential for lower monthly payments and eventual loan forgiveness.
Stay Informed: Keep abreast of any legislative or policy changes that may impact your student loans.
Communicate with Loan Servicers: Maintain open communication with your loan servicer to address any questions or concerns and to ensure you are enrolled in the most appropriate repayment plan.
Seek Financial Counseling: Consider seeking guidance from a financial advisor or student loan counselor to develop a personalized repayment strategy.

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