Changes to student loans threaten financial security of low-income borrowers

Nearly one in five student loan borrowers in Pennsylvania is now in default, according to data from the U.S. Department of Education and the Education Data Initiative. At the same time, new federal laws and policies have reduced student loan relief for the lowest-income borrowers, making it even more difficult for people to manage their student loans.

As an attorney at Community Legal Services (CLS), I am all too familiar with how student loan debt threatens economic security for low-income and aging borrowers and the important role that service providers must now play to help Philadelphians avoid default.

Changes to student loan payments are making it harder for borrowers to catch up

During the pandemic, federal student loan payments were paused, which prevented millions of borrowers from falling into default and suffering its worst consequences. However, since that payment pause ended, the student loan default rate has soared and exceeded pre-pandemic levels. Over the past year, 3.6 million student loan borrowers have defaulted on their federal student loans—one borrower every nine seconds.

At the same time, monumental changes to the student loan landscape have made payments more expensive for borrowers. First, the SAVE repayment plan would have helped more than seven million borrowers access much more affordable monthly payments than are available under other repayment plans. However, the U.S. Department of Education elected to stop defending the plan in litigation and instead entered into a proposed settlement agreement that would end the plan, keeping student loan borrowers burdened with much steeper monthly payments.

Second, the federal budget reconciliation bill made sweeping changes to the federal student loan system that harm low-income borrowers who are at the highest risk of default. Starting this year, this law eliminates income-driven repayment plans with zero-dollar monthly payments for low-income borrowers with new loans—including new consolidations of old loans. The law instead created a new plan called the Repayment Assistance Plan (RAP), which increases the minimum income-driven monthly student loan payment for many borrowers.

Third, recent legal changes will make it harder for student loan borrowers to access certain kinds of loan forgiveness and discharge. For starters, the federal budget reconciliation bill makes it much more difficult for borrowers whose schools have engaged in predatory practices—which notoriously target low-income, non-traditional, and Black and Brown students—to get relief based on their school’s misconduct.

In addition, recent regulatory changes to the Public Service Loan Forgiveness (PSLF) program give the Secretary of Education authority to disqualify certain employers from eligibility based on the kind of work that they engage in, which could leave hard-working borrowers who have dedicated their careers to public service locked out of critical student debt relief.  This rule is currently subject to litigation, but in the meantime, many borrowers in public service are left to navigate the already complicated student loan landscape with additional uncertainty.

Altogether, these changes will be devastating for the lowest-income borrowers, who are overwhelmingly older adults and seniors, disabled people, and Black and Brown people who have less access to wealth and are more likely to be targeted by unscrupulous, predatory schools. Without access to zero-dollar repayment plans, more low-income borrowers will default on their student loans. The federal government can then forcibly collect on the debt by taking their limited social security, wages, or tax returns, all without a court order.

Over the past several months, the U.S. Department of Education announced plans to prioritize the collection of federal student loan debt and restart forcible collection methods, such as taking tax returns and garnishing wages. Following vocal opposition from borrower advocates, the Department changed course and announced that it will be suspending forcible collection for defaulted student loan borrowers.

While this reversal offers some measure of temporary relief for borrowers on the brink of financial collapse, there are still plenty of reasons to be concerned about the fate of student loan borrowers in 2026. For starters, the Department has not indicated when exactly it intends to resume forcible collection, such that borrowers may only have a short window to get out of default to avoid its worst consequences. The Department of Education is also still reporting delinquency and default on student loans during this time, so borrowers’ credit remains impacted.

A June 30th deadline for student loan borrowers is fast approaching

Importantly, many borrowers must take action to protect their rights before June 30, 2026, and this critical deadline is not impacted by the Department’s delayed forcible collection activity. Because this deadline is coming up quickly, service providers should take steps now to inform borrowers of this deadline so that they do not lose critical rights.

First, Parent PLUS loan borrowers—those borrowers who took out loans to help finance their children’s education—must consolidate their loans by June 30, 2026, and then make one payment in the income-contingent repayment plan by June 30, 2028, to preserve their right to any income-based repayment plan. Low-income Parent PLUS borrowers who could be eligible for $0 monthly payments will be left with no option except for high, standardized monthly payments if they do not complete—not start—the consolidation process by June 30, 2026. Because consolidation applications can take weeks to process, borrowers must consolidate right away to maintain access to any income-driven repayment option.

Second, currently defaulted student loan borrowers who wish to consolidate to get out of default must do so as soon as possible to keep access to income-driven repayment with payments as low as zero dollars. Existing borrowers who take out new loans starting on July 1, 2026—which includes a new consolidation loan that consolidates older loans—will lose their current access to the income-driven repayment plans currently in effect, which have payments as low as zero dollars per month.

Existing borrowers and their families who are considering taking out new federal loans starting on July 1, 2026, must be very cautious, as they could lose access to the specific income-driven repayment plans that have payments as low as zero dollars per month.

Without a doubt, the government’s forcible collection of precious, limited resources keeps my clients trapped in poverty and prevents them from meeting their basic needs. Given the looming deadlines for borrowers to protect their key rights and the ever-shifting policy landscape, now is the time to inform low-income borrowers about their options, so that they can preserve their rights to affordable repayment.

Editor’s Note: Potential Implications for Nonprofits 

• This may drive financial insecurity and increase demands for basic needs such as eviction prevention, food assistance, utility aid, and legal aid.

• Many nonprofit staff carry substantial student debt and rely on income‑driven repayment and Public Service Loan Forgiveness (PSLF); RAP raises payments and reduces effective subsidies, which can strain already modest nonprofit salaries and retention.

• Parent PLUS borrowers working in nonprofits risk losing access to income‑driven options and PSLF if they miss the June 30, 2026 consolidation deadline, which could increase financial stress and turnover among mid‑career staff with children in college.

• This may undercut expected program outcomes in areas like housing stability, workforce development, small business support, and racial wealth‑building.