Navigating Student Loan Forgiveness and Repayment Changes

The landscape of federal student loans is undergoing significant changes, impacting borrowers in various ways. Recent court decisions, coupled with legislative actions like the One Big Beautiful Bill Act (OBBBA), are reshaping loan forgiveness programs, repayment plans, and borrowing limits. Understanding these developments is crucial for borrowers to make informed decisions about their student loans.

Sweet v. McMahon Settlement: Court Rulings Favor Borrowers

A significant legal battle, Sweet v. McMahon (formerly Sweet v. Secretary of Education), has resulted in two key court victories for student loan borrowers. This long-running class action lawsuit addresses stalled or rejected student loan forgiveness requests under the Borrower Defense to Repayment program.

Borrower Defense offers a pathway to discharge federal student loans based on certain forms of school misconduct, such as misrepresentations about educational programs or career prospects. A 2022 settlement agreement between the Education Department and a class of student loan borrowers provided automatic student loan forgiveness and other relief to hundreds of thousands of borrowers who attended specific schools.

For those who submitted Borrower Defense applications after the settlement's approval but before it was formally entered into court (referred to as “post-class applicants”), the settlement agreement mandated that the Education Department process these applications by the end of January 2026. Failure to do so would entitle these borrowers to an automatic discharge of their federal student loans, along with other settlement relief.

However, the Education Department sought to delay this relief, requesting the court overseeing the Sweet v. McMahon settlement to extend the deadline for post-class applicants by a year and a half. On Tuesday, the court rejected the Education Department’s second request to delay student loan forgiveness processing for post-class applicants under Sweet v. McMahon.

The court rejected the Education Department’s attempt to delay providing settlement relief to post-class applicants. The department missed the January 28, 2026, deadline for reviewing nearly 170,000 Borrower Defense applications submitted by post-class applicants, and under the terms of the settlement agreement, these borrowers are entitled to complete relief, including student loan forgiveness, a refund of past payments made on the applicable student loans, and corrections to any associated credit damage.

“At no point before November 2025 did the Department signal that it would have any trouble meeting its deadline to adjudicate all post-class applications,” reads the ruling issued on Tuesday. “Rather, the Department waited until the eleventh hour, not even three months before the January 28, 2026 deadline to to seek the relief now requested. The Court agrees with Plaintiffs that to justify such relief, ‘a party must show ‘extraordinary circumstances’ suggesting that the party is faultless in the delay.’ Pioneer Inv. Servs. Co. v. Brunswick Assocs. 380, 393 (1993). Defendants have shown no such circumstances.”

“The Court denies Defendants’ motion for the simple reason that the record amply reflects that Defendants have not shown (and indeed, cannot show) that any extraordinary circumstances beyond their control prevented timely action to protect their interests,” concluded the court.

Eileen Connor, President and Executive Director of the Project on Predatory Student Lending (PPSL), the legal organization representing the class of student loan borrowers in the Sweet case, stated, "Today’s decision sends an unmistakable message: court orders are not optional. The Department tried to run out the clock on nearly 200,000 borrowers, offering last-minute excuses for its own delay - and the Court shut that down. This is a huge win for our clients, who have endured years of financial and emotional hardship while waiting for justice. The law is on our side, and we will stand with them until every single class member receives the hard-won relief they are owed.”

Supreme Court Upholds Discharges

Adding to the victory, the Supreme Court declined to hear a separate appeal from a coalition of schools seeking to block settlement relief for some student loan borrowers under Sweet v. McMahon. Four institutions including Everglades College, Lincoln Educational Services Corporation, American National University, and the Chicago School of Professional Psychology, had tried to intervene in the case, but their attempts had been repeatedly rejected by lower courts. The Supreme Court's decision effectively leaves in place the Sweet v. McMahon settlement agreement and all of the associated relief, including discharges of student loans.

“Today’s decision confirms what we have said all along: Everglades and the other intervenors had no basis to challenge this agreement," said Connor of PPSL. "For the second time, the Supreme Court has refused to hear meritless arguments brought by entities with no legal claim in a lawsuit between student borrowers and the federal government. At every level of the judiciary, their efforts to delay relief have failed. This decision finally puts an end to this bogus dispute. We will continue enforcing this legally binding settlement until every class member receives the relief they are owed.”

Implications for Borrowers

These dual court rulings should pave the way for Sweet v. McMahon settlement relief to move forward for post-class applicants. This includes automatic discharges of student loans for covered borrowers and refunds of past payments made. Borrowers should receive a notice from the Education Department stating their eligibility for full settlement relief by March 29, 2026, with relief delivered within one year of receiving that notice. Post-class applicants who did not attend an Exhibit C school are owed a decision from ED by April 15.

The One Big Beautiful Bill Act (OBBBA) and Loan Program Changes

The One Big Beautiful Bill Act (OBBBA) has introduced substantial changes to the federal student loan program. The Department of Education has published its notice of proposed rulemaking to implement these changes, with proposed regulations open for public comment until March 2. Key changes include new repayment plans, borrowing limits, and the elimination of certain loans and repayment options.

New Repayment Plans: TSP and RAP

The OBBBA created two new repayment plans, the Tiered Standard Plan (TSP) and the Repayment Assistance Plan (RAP), which are the only two repayment options available for borrowers with new loans disbursed on or after July 1. These options are also available for current borrowers who choose to or are required to change plans.

Tiered Standard Plan (TSP)

The Tiered Standard Plan is a fixed repayment plan with payments spread over 10, 15, 20, or 25 years, depending on the amount borrowed. While it offers lower monthly payments for high-debt borrowers by extending the repayment window, it increases the total interest paid if the borrower holds the loan to term. Borrowers may prepay without penalty. The maximum term length of 25 years is for loan balances of $100,000 or greater. The TSP would replace the current standard 10-year, extended 25-year, and graduated versions of those fixed plans. The proposed rule specifies that the minimum monthly payment with this plan will be $50. If a borrower does not select a repayment plan for loans disbursed on or after July 1, they will be automatically placed in the TSP.

Repayment Assistance Plan (RAP)

The Repayment Assistance Plan is a new income-driven plan with annual payments ranging from 1% to 10% of adjusted gross income, depending on income level. The 10% level begins at $100,000 of adjusted gross income. Borrowers who make on-time payments will always see their balance decrease, even if their payment amount does not cover their monthly interest. If the monthly payment is less than the amount of interest accrued, the amount not covered will not be charged. If the monthly payment reduces the outstanding principal balance by less than $50, the principal balance is reduced by up to $50. Monthly payments are also reduced by $50 per dependent. After 30 years, any remaining balance is forgiven, with the forgiveness amount subject to federal tax at that time.

Changes to Borrowing Limits

The OBBBA established new annual and aggregate loan limits for professional students, starting July 1. Professional students whose first federal loan for their current degree program is disbursed on or after July 1 may borrow up to $50,000 per year in Direct Unsubsidized Loans, with an aggregate cap of $200,000; the aggregate cap includes any graduate borrowing such as for a master’s degree. The lifetime borrowing limit for these first-time borrowers is $257,500, including any undergraduate borrowing.

The proposed rule would limit the definition of "professional student" to 11 programs, with veterinary medicine included. Regarding loan limits for dual-degree programs, according to the proposed rule, "If a student is enrolled in a program that awards both a graduate degree and professional degree, the student would be considered a professional student for the purposes of loan eligibility if more than 50 percent of the credit hours in that academic program count toward the professional degree." These students would also qualify for the $50,000 annual and $200,000 aggregate loan limits.

Elimination of Certain Loans and Repayment Plans

Under the OBBBA, Direct PLUS Loans, including Grad PLUS loans for graduate students, will be eliminated on July 1. However, the Education Department proposed a grandfathering provision to this rule for current students: If a student is enrolled in a program at an institution as of June 30 and a direct loan of any kind, including a direct unsubsidized loan, was made to the student before July 1, then that student may borrow a Direct PLUS Loan "during the period of the student's expected time to credential." This assumes the borrower still has a direct loan balance as of that date.

This means that current veterinary students may continue to borrow Direct PLUS loans until graduation as long as they have taken out at least one direct loan before July 1. A notable proposed exception to this provision is for students who are no longer enrolled in a given semester. Even if they later reenroll in their same veterinary college, they will no longer be eligible for Direct PLUS loans. No more new Direct PLUS Loans will be made as of July 1, 2029, at which time the program will sunset.

Existing borrowers with loans taken before July 1, who do not have any new loans disbursed on or after that date, can stay in their current income-driven plans for now. However, the Pay As You Earn (PAYE) and Income-Contingent Repayment (ICR) plans will be phased out under the OBBBA, and borrowers in those plans must move to another plan no later than July 1, 2028. In contrast, the income-based repayment (IBR) is a protected plan approved by Congress, so borrowers in IBR with loans taken before July 1 can stay in IBR for the remainder of their loan term. The OBBBA removed the partial financial hardship requirement for IBR, which previously required borrowers’ calculated payment with IBR to be less than the original calculated standard 10-year amount when the borrower first applied for IBR.

Public Service Loan Forgiveness (PSLF)

The Public Service Loan Forgiveness (PSLF) program remains available to borrowers enrolled in qualifying plans, including IBR and RAP. The same is true for those in PAYE and ICR, until July 1, 2028, when borrowers are required to move plans. The Department of Education emphasized in the proposed rule that the new Tiered Standard plan is not a qualifying repayment plan for PSLF purposes. That means a borrower who is on track to receive PSLF and is currently in a repayment plan scheduled to phase out will need to proactively select a PSLF-qualifying repayment plan by July 1, 2028, otherwise they will automatically be placed in the Tiered Standard plan and their eligibility for PSLF will be paused.

Payment Postponement: Deferment and Forbearance

Deferment and forbearance are two options for temporarily suspending student loan payments, and the OBBBA placed new limits on the use of both. While the OBBBA removed unemployment and economic hardship deferment options for new direct loans, it preserved them for current borrowers. For forbearance, current borrowers with loans disbursed before July 1, 2027, would still be eligible for the current forbearance period of up to one year with the option to request a renewal as long as they continue to meet the forbearance criteria.

Loan Rehabilitation

The OBBBA also addressed loan rehabilitation, a process to remove student loans from default through a series of on-time payments. Before the passage of the Act, borrowers were only allowed a single chance at rehabilitation. 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.

Seeking Help and Information

Navigating the complexities of student loans can be challenging. Here's how to find information and assistance:

Contact Your Loan Servicer: Your loan servicer can provide individualized advice about your student loans.
Federal Student Aid Loan Simulator: Compare repayment plan options using the Federal Student Aid Loan Simulator.
Federal Student Aid Office of the Ombudsman: Submit a request to the Federal Student Aid Office of the Ombudsman to help resolve complaints about federal student loans.
State Student Loan Ombudsman Offices: Some states offer direct assistance through state student loan ombudsman offices.
Department of Education's Office of Federal Student Aid: Provides official updates on the SAVE Plan.
The Institute of Student Loan Advisors: Offers guidance and resources for borrowers.
State-Sponsored Counseling: At least two states, New York and California, have invested in one-on-one student loan counseling.

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