PSLF borrowers face new repayment limits after July 1 rule changes

Public Service Loan Forgiveness borrowers now face a narrower set of repayment choices after federal student loan changes took effect July 1. For public-sector and nonprofit workers, the wrong repayment plan can mean monthly payments that do not move them closer to loan cancellation.

The changes stem from President Donald Trump’s One Big Beautiful Bill Act, which altered parts of the federal student loan system. Separate efforts by the Trump administration to limit which employers qualify for Public Service Loan Forgiveness, known as PSLF, have been blocked in federal court, but other changes are already affecting borrowers.

PSLF was signed into law by President George W. Bush in 2007. The program allows eligible government and not-for-profit workers to have federal student loans forgiven after 120 qualifying monthly payments, equal to 10 years of payments. Protect Borrowers, a nonprofit, estimated in 2022 that more than 9 million borrowers may be eligible.

The new default plan does not count toward PSLF

Borrowers pursuing PSLF must be in a repayment plan that qualifies for the program. Scott Buchanan, executive director of the Student Loan Servicing Alliance, said payments made under the new Tiered Standard Plan created by the law will not count toward the 120-payment requirement.

The Tiered Standard Plan uses fixed payments, with repayment timelines that vary based on the borrower’s total debt. That matters for newer borrowers because Rich Williams, a former deputy assistant secretary at the Education Department, said borrowers who take out loans on or after July 1 are placed in the Tiered Standard Plan by default if they do not choose another plan.

For those new borrowers, the repayment option that can count toward PSLF is the new Repayment Assistance Plan, or RAP. RAP is an income-driven repayment plan, meaning the monthly bill is tied to a borrower’s income. Under RAP, payments generally range from 1% to 10% of earnings, with higher earners owing a larger share.

Existing borrowers seeking PSLF may still have access to other qualifying income-driven repayment plans, including Income-Based Repayment, according to Nancy Nierman, assistant director of the Education Debt Consumer Assistance Program in New York. She said PSLF borrowers should focus on whether the plan counts toward the 10-year PSLF path, not the longer forgiveness timeline attached to some income-driven plans.

Many Parent PLUS borrowers lose a route into PSLF

The law also changed access for Parent PLUS borrowers, who take out federal loans to pay for a child’s education. Williams said Parent PLUS loans no longer have a route into income-driven repayment or PSLF under the new rules.

Parents who take out new loans after July 1 qualify only for the Tiered Standard Repayment Plan, which does not generate PSLF credit. Existing Parent PLUS borrowers recently had a short period to consolidate their loans and potentially keep access to an income-driven repayment plan. Consolidation can turn Parent PLUS debt into a Direct federal loan, the type most student borrowers use.

Experts said borrowers who missed that consolidation window have lost access to income-driven repayment plans and, as a result, the PSLF benefit.

Employer eligibility rule is on hold after court rulings

One area of uncertainty has eased for now. In June, two federal judges struck down a Trump administration rule that would have changed the definition of a qualifying PSLF employer to exclude organizations that “engage in unlawful activities.”

Critics of that rule said the wording was broad enough to let the administration disqualify nonprofits it opposed. Nierman said the administration could appeal, but had not said anything since the rule was struck down.

The Education Department says on its website that it is updating the PSLF form to comply with the court order. The department also says language asking employers to certify that they have not engaged in illegal activities “will have no effect.”

Borrowers can check whether their work qualifies by submitting the employer certification form. Experts recommend doing that at least once a year and keeping records of confirmed qualifying payments.

This story draws on original reporting from CNBC.