Trump’s Big Beautiful Bill Repeals Student Loan Forgiveness for These Groups

Probably the best that one could say about the changes to federal higher education finance policy signed into law July 4 with the One Big Beautiful Bill Act is that the sweeping legislation didn’t do as much damage as it could have done. The House version was one of the least popular reconciliation packages in the past 60 years and only passed the chamber in the middle of the night by a single vote. Concerned that the bill might not pass, the Senate’s leadership removed several controversial provisions at the last minute that helped moderate some of the OBBB’s impacts on college students.

Still, this massive legislative package represents the most formidable effort to dismantle repayment plans and student loan forgiveness programs since these groundbreaking policies were first enacted by the Clinton Administration in 1993. Specifically, the OBBB targets three main classes of borrowers who will all see their forgiveness pathways modified, delayed or eliminated entirely. And along with the OBBB, a presidential executive order could reduce eligibility among a fourth borrower category. Critics argue these changes will also inflate monthly bills, increase the risk of defaults, and in at least one case will ensnare borrowers for decades in a long-term debt trap.

Because one new plan will affect a huge proportion of borrowers, we begin our coverage with a look at this plan—the Repayment Assistance Plan or RAP. Then we’ll take a brief look at the borrower groups targeted by the legislation.

In our May 2025 article, “Student Loan Forgiveness: Why Economists Say Income-Driven Plans Are Always Superior,” we argue based on overwhelming evidence that income-based plans are always superior to standard, mortgage-style repayment plans. That’s because the purpose of income-driven plans is to provide a safety net when higher payments aren’t an option by adjusting payments according to income and family size.

However, economists from Britain and Australia—where all student loan borrowers across each nation enroll in a single income-driven plan—have argued that the United States has too many student loan repayment programs. They say the U.S. plans give borrowers too much choice, with differentiated terms that often seem bewildering even for astute college students and graduates.

To that extent, the new legislation offers some simplification. It replaces all the existing income-driven plans and substitutes only a single program—the new Repayment Assistance Plan launching in 2026. It also collapses all the non-income-driven plans into a single mortgage-style, fixed payment “standard” plan, but with repayment lengths that vary in proportion to the borrower’s outstanding balance.

But that’s only about as far as the positives go. Both of these plans appear to be unaffordable for many, and RAP in particular departs from the core tenets designed into all previous income-based repayment plans in the United States since the Clinton Administration imported this innovative concept from Australia.

Under RAP, most borrowers will face higher monthly payments. But in contrast to all other income-driven plans during the past 32 years, this plan hits the lower-income borrowers the hardest. And according to higher education finance expert Michele Zampini at TICAS—The Institute for College Access and Success—RAP also sets up a debt trap for the lowest-income borrowers.

Why? One reason is that the plan extends the maximum student loan forgiveness term from as little as 10 years with current PLSF (Public Service Loan Forgiveness) loans, to a whopping 30 years—five more years than any current repayment plan. And that means RAP will “likely trap the lowest-income borrowers in debt for decades,” according to Zampini.

Another reason is that it deletes the “income insurance” protection feature of all prior U.S. plans, plus the national plans in countries like Britain, Australia, and Hungary. No longer will a borrower have enough of their income “protected” so they can afford their loan payment while still having enough funds to cover their basic living needs like food, housing, and utilities.

That’s because RAP calculates a borrower’s payment based on their gross income instead of their discretionary income. This means RAP still requires borrowers who earn well below the current federal poverty level—which for an individual is $15,650—to make loan payments. By comparison, Zampini says that “even the least generous prior income-based plan doesn’t start requiring payments until a borrower’s income is above 100 percent of the federal poverty level.”

Even during good economic years, this predicament is common among recent graduates who haven’t yet found stable work. But with the RAP plan, they could face the possibility of credit damage—and potentially a default—even before they get their careers started. “This will likely drive many more borrowers into loan default,” warns Zampini.

Below, we examine the three borrower groups targeted by the One Big Beautiful Bill Act. This is the first time that federal statutes have restricted access to student loans since 1958–67 years ago—when the National Defense Education Act introduced federal loan guarantees for the financing of college and graduate degrees.

No More Student Loan Forgiveness for SAVE, PAYE, and ICR Programs

Despite the superiority of income-driven student loan plans around the world, three of these advanced IDR programs somehow ended up on the GOP’s chopping block with student loan forgiveness paused.

The OBBB repeals three of the most widely used IDR plans—the SAVE, PAYE, and ICR plans. Although these three IDR plans were created under the same Congressional statute passed in 1993, the SAVE Plan has been blocked ever since the Eighth Circuit Court of Appeals ruled against it in June 2024. Then, in February 2025, that same court questioned whether the forgiveness programs offered with the two other plans were legal.

But under the One Big Beautiful Bill Act, these plans would no longer just be frozen—they would be fully repealed and no longer available to new borrowers starting in 2026. And what’s more, a provision in the Act even blocks a future administration from bringing them back through administrative regulations.

Current enrollees would be automatically moved into the Income-Based Repayment (IBR) plan, an older program which was also established by Congress and isn’t repealed by the OBBB. Student loan forgiveness payments that counted in the repealed plans would also count toward forgiveness in IBR. But the IBR plan is clearly a less desirable option. IBR often results in higher monthly payments, and it also extends the student loan forgiveness interval to 25 years for most borrowers.

Alternatively, despite the RAP program’s drawbacks, borrowers could also switch to that plan. Because RAP creates what consumer advocates view as an intentionally unreachable financial goal, borrower advocates at some policy groups like New America have started calling it the “TRAP Plan.”

Persis Yu, the managing counsel of the Student Borrower Protection Center, warned in her April 2025 testimony before the U.S. Department of Education that when the legislation contained in the OBBB becomes law, borrowers would be driven further into debt:

We stand in strong opposition to the Trump Administration’s attempts to implement Project 2025, which calls for gutting Income-Driven Repayment (IDR) options and eliminating Public Service Loan Forgiveness. Let’s be clear, the Trump Administration’s assault on IDR and PSLF isn’t reform—it’s retaliation. These actions would force nurses, teachers, veterans, and others who have dedicated their careers to serve our communities, to choose between paying their monthly student loan bills. . .and putting food on their tables. Borrowers everywhere would be driven further into debt, while relief is pushed further out of reach.

Parent PLUS Borrowers Face a Student Loan Forgiveness Dead End

Our next targeted group comprises the borrowers holding Parent PLUS loans, who, for several reasons, are especially vulnerable under the OBBB.

These loans are not eligible for most IDR plans. Instead, they rely exclusively on the ICR (Income-Contingent Repayment) plan for forgiveness eligibility under federal law. However, because the OBBB has now repealed the ICR program, it has removed the only existing path to income-based repayment and forgiveness for most Parent PLUS borrowers.

The only exception concerns whether they’ve already consolidated their loans, in which case the Education Department will automatically switch them to the IBR plan. The new RAP Plan specifically excludes these borrowers, so that option won’t provide them with an alternative.

Critics assert that this narrow exception fails to protect the vast majority of Parent PLUS borrowers, especially those who have not yet consolidated their loans or were unaware of the time-sensitive steps required to access the ICR program.

Without a path to an income-driven repayment plan, most Parent PLUS borrowers will be left with fixed mortgage-style payments unrelated to income—the inflexible and challenging situation that IDR plans were originally designed to remedy. Although the Parent PLUS plans were originally intended for affluent parents in their peak earning years, many PLUS borrowers these days are middle- and lower-income minority parents who borrowed as a last resort to enable their children to stay in college and finish their bachelor’s degrees.

Moreover, because PSLF requires borrowers to select an income-driven plan, repealing ICR would effectively lock Parent PLUS borrowers out of PSLF as well. But there’s another group that the OBBB Act specifically excludes—and it’s a group that society needs.

Medical and Dental Residents No Longer Qualify for PSLF Student Loan Forgiveness

In an unprecedented departure from 18 years of federal policy, the OBBB Act specifically excludes medical and dental residents from Public Service Loan Forgiveness eligibility—even if they are employed at qualifying nonprofit or public hospitals.

This carve-out targets one of the most overworked and financially-burdened groups of borrowers in the country. To gain clinical experience, medical residents often work grueling hours for relatively low pay at public or nonprofit hospitals while repaying hundreds of thousands of dollars in medical school debts. Since the PSLF program was signed into law by President George W. Bush in 2007, many residents have relied on it as a critical financial safety net. Some say that without PSLF, they would have chosen other careers besides medicine.

But under the Big Beautiful Bill, residents no longer earn credit toward student loan forgiveness through the PSLF Program during their internships or residencies, which substantially increases their loan repayment burden. Critics charge that this policy shift punishes doctors and dentists for choosing public service careers in healthcare by working at county hospitals and for the Veterans Administration—centers which already face challenges in recruiting enough qualified specialist physicians when most can make much more money in the private sector.

Adding yet another dimension to the student loan forgiveness rollback is the March 2025 executive order from President Trump, which we examined in several of our 2025 articles. In short, this order directs the U.S. Department of Education to deny PSLF eligibility to nonprofit or public organizations engaged in what the Trump Administration characterizes as “improper” or “illegal” activities.

Advocates argue that the executive order’s vague and sweeping language creates chilling uncertainty for a wide range of PSLF-enrolled workers employed by nonprofits or government operations. That’s because almost any nonprofit organization or university could be targeted under this executive order. They include organizations that allegedly facilitate violations of immigration law, engage in diversity, equity, and inclusion (DEI) training, or promote other activities deemed by the Administration to be outside its ideological priorities.