The landscape of federal student loan repayment is set to undergo significant changes starting in 2024, as outlined in the Biden administration's budget bill. These modifications aim to streamline repayment options and provide more affordable plans for undergraduate borrowers while limiting some benefits for graduate students and parents.

At the forefront of these changes is the introduction of the SAVE (Saving on a Valuable Education) plan, a new income-driven repayment option designed to replace existing plans such as Income-Based Repayment (IBR) and Pay As You Earn (PAYE). Under SAVE, undergraduate loan borrowers will see their payments capped at 5% of their discretionary income, potentially providing significant relief for many struggling with student debt.

By 2025, most existing repayment plans will be phased out, leaving borrowers with two primary options: the standard 10-year plan or the new SAVE plan. This simplification aims to reduce confusion and streamline the repayment process for both borrowers and loan servicers.

The bill also introduces changes to loan limits, with some undergraduate programs facing reduced borrowing caps. Perhaps most notably, PLUS loans for graduate students will be discontinued starting in 2024, potentially impacting the ability of many to finance advanced degrees. Additionally, parent PLUS borrowers will lose access to income-driven repayment plans, which could lead to higher monthly payments for some families.

In a move to prevent perpetual loan struggles, loan rehabilitation will be limited to once per borrower, rather than allowing multiple attempts. This change encourages borrowers to carefully manage their loans and seek alternative solutions if they face repayment difficulties.

On a positive note for borrowers facing severe hardships, the tax exemption on loans discharged due to total and permanent disability will be extended. This provision offers crucial financial relief to those unable to work due to disability.

Another significant change under the SAVE plan is that interest will no longer accrue if a borrower's payment doesn't cover it. This adjustment aims to prevent balances from ballooning due to unpaid interest, a common complaint among borrowers in income-driven repayment plans.

Financial experts advise existing borrowers to consider consolidating their loans before 2025 to retain access to current repayment options. Those taking out loans after 2024 will face more limited choices, making it crucial to carefully evaluate borrowing decisions.

While these changes bring both benefits and drawbacks, it's important to note that federal student loans still offer more protections and flexible repayment options compared to private loans. However, the elimination of some previous benefits means borrowers should closely examine their options and plan accordingly for the future.

As these changes roll out over the next few years, students, parents, and current borrowers are encouraged to stay informed about their repayment options and seek guidance from financial aid offices or student loan counselors to navigate the evolving landscape of federal student loan repayment.