Federal Student Loans: Consider a New Payment Plan

By Mark Ziety, CFP®, AIF®, Financial Advisor, WisMed Financial

Navigating the world of federal student loans can be complex, especially with constant changes to repayment plans and forgiveness programs. Here is a breakdown of the latest updates and options to help borrowers make informed decisions.

A Look at Income-Driven Repayment Plans

The landscape of income-driven repayment (IDR) plans is evolving, with some plans being phased out and a new one on the horizon. Here’s a quick guide to who should consider each plan:

• Income Contingent Repayment (ICR): This plan is generally not recommended unless it is the only option available to you. Typically, parents with Parent Plus loans will select this option as it is their only choice unless they can consolidate loans to access other payment plans.
• Saving on a Valuable Education (SAVE): Those enrolled in SAVE can stay on this plan and there is still no payment required for those who need more time to adjust their budget. Be aware that this plan will be eliminated July 1, 2028, interest started to accrue as of August 1, 2025, and payments do not count toward loan forgiveness.
• Income-Based Repayment (IBR): There are two versions of this plan, one for borrowers with loans before July 1, 2014, and one for borrowers with loans after that date. The IBR 2014 plan (loans after July 1, 2014) typically has the next lowest monthly payment after SAVE making it the plan to highly consider when switching from SAVE.
• Pay as You Earn (PAYE): This plan is very similar to the IBR 2014 plan but is also being phased out after July 1, 2028. Importantly, it has the same payment as the IBR 2014 plan. Those who don’t qualify for the 2014 version of IBR usually consider PAYE as the next best plan after SAVE.
• Repayment Assistance Plan (RAP): A new plan is expected to be available by July 1, 2026. This could be the preferred plan for those with low to moderate income. The plan is notable because unpaid interest will not accrue, the monthly payment could be lower than other plans, and each month’s payment reduces principal even if the payment is less than that month’s interest charge.

Important Dates and Program Changes

Keep these key dates and rule changes in mind:

• Partial Financial Hardship: The requirement for a “partial financial hardship” to qualify for IBR plans has been removed, making it easier to switch to this plan.
• Grandfathered Rules: If you want to stay on an older plan like PAYE or IBR after July 1, 2026, you must not take out any new loans or a new consolidation loan after that date.
• Parent PLUS Loans: If you have Parent PLUS loans and want to make them eligible for certain IDR plans, you must consolidate them before July 1, 2026.

Updates to the PSLF Buyback Program

The Public Service Loan Forgiveness (PSLF) Buyback program is a significant development for those pursuing PSLF. This program allows borrowers to “buy back” months of forbearance or deferment to gain credit toward the 120 qualifying payments needed for PSLF. This may be a great way to recoup forgiveness credit for those who have been in the SAVE forbearance. While currently limited to those who have already completed their 120 qualifying months, the program is expected to eventually open to all borrowers.

For more details on the current state of student loans, watch the full videos by WisMed Financial, Inc. at https://youtu.be/sVhray5rSuM and https://youtu.be/wfeqq7nTS7Y.

For personalized help with your financial plan, please contact Mark Ziety, CFP®, AIF® 608.442.3750.

Mark Ziety, CFP®, AIF®

WisMed Financial, Inc. part of the Wisconsin Medical Society