Repayment Crisis and OBBBA Force Schools to Act

Throughout the 2020s, borrowers and schools had to deal with a series of rule changes, executive orders, and court rulings. By the end of 2024, schools and students were united in confusion.

Then 2025 happened. Student loan delinquency rates rose to record highs, and the repayment system was completely rewritten.
In the aftermath, schools find themselves facing major challenges and additional government oversight. To prepare for the future, we must take a hard look at the past and survey the transformed landscape of higher education.

Overview:

• Student loan delinquency rates are higher than ever.
• The SAVE Plan has been officially retired.
• PAYE and ICR will be retired in 2028.
• The new Tiered Standard Plan and Repayment Assistance Plan (RAP) will be available on July 1, 2026.
• Tiered Standard will be the new default repayment plan.
• The federal government has introduced new mechanisms that put more responsibility on schools.

The Repayment Crisis

In 2023, Student Connections laid out the challenges facing borrowers returning to repayment, the inadequate resources available to them, and the consequences of ignoring the problem . We could shield our client schools and their students from the fallout, but had no power to address the systemic issues.

During late 2024, an estimated 28 million borrowers flooded the under-resourced student loan repayment system. Loan servicers struggled to convey accurate information to their borrowers, causing even more confusion. Traditional support systems (built to assist a steady trickle of students entering repayment) buckled under the massive number of confused and desperate borrowers seeking guidance. Forty percent of borrowers missed their first payment.

By February of 2025, the U.S. Department of Education (ED) had stopped assessing servicers’ accuracy and monitoring call quality.

This was our worst-case scenario, and the results were catastrophic. Delinquency rates hit all-time highs in 2025. By the end of the year, 7.7 million borrowers had defaulted on their loans. That number grew to 9.2 million by March 2026, with an additional 2.4 million accounts in late-stage delinquency.

While the total delinquency rate dropped slightly in early 2026, it remains at emergency levels. Unless millions of borrowers are guided into repayment plans they can afford, the repayment crisis of 2025 will become the default crisis of 2026.

End of the SAVE Plan

The Biden administration’s SAVE Plan has died a thousand deaths. It was paused in July 2024, ruled illegal in February 2025, and shuttered by ED in December 2025. In February 2026, it was revived for one week before being shut down for good. As of March 2026, borrowers cannot apply for SAVE, and existing applications are being denied.

All SAVE borrowers must switch repayment plans by the end of September 2026. ED has already notified them of this requirement. Starting July 1, 2026, federal loan servicers will begin issuing a final warning to this group, giving them a final, 90-day window to select an alternate plan.

Our article, “Navigating the End of SAVE in 2026,” provides guidance to SAVE borrowers caught up in the chaos. Please share it with your former students.

Retirement of IDR Plans

The 8th U.S. Circuit Court of Appeals’ decision against SAVE had a surprising impact on the Income-Contingent Repayment (ICR) and Pay as You Earn (PAYE) plans. Each had their loan forgiveness mechanism stripped out, effectively kneecapping them.

Borrowers may still apply for ICR and PAYE, but both plans will be eliminated on July 1, 2028. Enrollees must switch repayment plans by this date or ED will assign them to one.

Income-Based Repayment (IBR) is the last IDR plan standing. Because its forgiveness component was created through an act of Congress, it is immune to the court’s ruling. IBR remains an option for borrowers with existing loans, but will be barred to those with new loans disbursed on or after July 1, 2026.

Tiered Standard Repayment Plan

A portion of 2025’s sprawling One Big Beautiful Bill Act (OBBBA) completely remakes student loan repayment. It eliminates the Extended and Graduated plans, schedules the ICR and PAYE plans to sunset in 2028, and creates two new plans: the Tiered Standard Repayment Plan and Repayment Assistance Plan (RAP).

This restructuring aims to simplify the selection of a repayment plan. Even after the SAVE Plan was eliminated, borrowers still had six to choose from. Students with loans disbursed on or after July 1, 2026, will be limited to either Tiered Standard or RAP.

The Tiered Standard Plan offers fixed monthly payments, and bases a borrower’s repayment period on their total debt. It will also be the default payment plan. Starting July 1, 2026, students who exit school will be automatically placed on the Tiered Standard Plan.

RAP is Congress’s replacement for the existing suite of IDR plans. It has pros and cons when compared to its predecessors.

• Monthly Payments — RAP requires higher monthly payments than SAVE. When stacked up against IBR, the picture is a bit more complex. Depending on a borrower’s income, marital status, and number of dependents, either IBR or RAP could be the best choice for a lower payment amount.
• Interest Control — RAP includes a mechanism to prevent runaway interest, a clear improvement from previous plans. As long as a borrower makes their monthly payment, the government will nullify any unpaid interest for that month and pay up to $50 towards the borrower’s principal. This should prevent borrowers from falling into an interest trap, where their debt grows despite making the required payment.
• Repayment Window — RAP provides loan forgiveness after 30 years of payments. This is five years longer than IBR or any other IDR plan.
• PSLF — Payments made on RAP count towards Public Service Loan Forgiveness (PSLF) for qualifying borrowers.

Whether RAP can help bring rampant delinquency under control remains to be seen. At the very least, it offers low-income borrowers a chance to stay current on their loans without drowning in growing debt.

Government Holding Schools Accountable

In February 2026, ED publicly released nonpayment rates for post-secondary schools across the nation. This follows a May 2025 announcement advising schools to engage in proactive outreach to prevent default among former students.

Schools are only responsible for their cohort default rate (CDR), but delinquencies are fast becoming defaults. To combat this trend, ED advises schools to:

• Develop and execute a default management and prevention plan that includes targeted intervention for delinquent borrowers.
• Provide students and former students access to financial literacy courses and student loan repayment information.
• Create a borrower portal and use it to connect students to available resources.
• Build cross-departmental collaboration to tackle the problem.
• Leverage the experience of third-party experts in reaching borrowers .

Congress has also taken action. OBBBA institutes several measures meant to ensure a student’s education debt can be paid off once they leave school. These include:

• Borrowing Caps — A lifetime borrowing cap of $257,500 has been placed on all students. Additional limits have been set for students borrowing towards professional and non-professional graduate degrees. Parental borrowing is also capped at $65,000 per child.
• Defunding Unprofitable Majors — The Gainful Employment for All mechanism treats post-secondary education as a strictly financial investment. It requires “programs of study” within an institution to graduate individuals whose average income is greater than that of workers with less education. If a major fails to meet this standard two out of three consecutive years, it will be ineligible for federal loans.
• Institutionally-determined Loan Limits — Individual schools will have the ability to set loan caps for specific programs of study. They must be set below the statutory limit and be applied to all students within the major.

Taken together, ED’s guidance and the passage of OBBBA send two clear signals. First, the government expects higher education to pay off in a literal sense. Second, if schools want to remain eligible for federal loans, they must take partial responsibility for their students’ post-graduation success.

How Should Schools React?

Borrower delinquency is at a crisis point. The government has revamped the repayment system and is instituting new oversight mechanisms. How can your school meet these challenges?

Student Connections recommends a proactive and sustained outreach strategy.

• Address delinquent borrowers now. Your top priority should be reaching delinquent borrowers and counseling them into affordable repayment plans. Without intervention, they will quickly become defaulted borrowers. That could spike your school’s CDR, subjecting it to government sanction and loss of student loan eligibility.
• Reach out to borrowers on canceled repayment plans. One-quarter of all borrowers (about ten million) are enrolled in SAVE, PAYE or ICR. Millions more are in temporary forbearance. Helping them successfully transfer to another plan they can afford will help reduce future delinquency.
• Provide financial wellness education to students. Basic financial literacy helps students align the costs of a degree with their career goals, manage debt responsibly and prepare for repayment.

Work with a Trusted Partner

If you feel overwhelmed, don’t panic! Most schools don’t have the resources or expertise to provide a full-service counseling solution. Student Connections can help. Our proactive, default prevention services include:

• Experienced Loan Counselors — Our highly motivated Borrower Advocates provide compassionate loan counseling guided by innovative data analysis. They receive extensive training before they connect with students, and continually hone their skills on the job.
• Multi-channel Outreach — We contact borrowers through phone, email, mail, social media and chat. Borrower data is continually revised and updated throughout our campaigns to ensure we have the most accurate contact information available.
• Financial Education — CashCourse offers bite-sized, mobile-friendly lessons on practical financial topics like budgeting, credit use and student loans. All students, faculty and staff at our partner schools receive complimentary access.
• Borrower Support Website — My.StudentConnections.com offers students a self-service option that can help identify an affordable repayment plan, find loan information, and keep up with repayment-related news.
• On-demand Performance Reporting — Our Borrower Connect software allows schools to generate a range of on-demand reports; from executive-level overviews to deep dives into individual borrower’s loans. Easily review best/worst-case CDR projections, cohort trends, campaign effectiveness, cure rate trending and more.

Student Connections can run any aspect of your campaign at a lower cost than you might imagine. Whatever you need, we can help! Contact Student Connections today to learn more.