A Changing Student Debt Landscape
One of the key challenges that student loan borrowers are facing in the current day is constant change. In the last 5 years alone, the PSLF program has been overhauled and simplified, the SAVE repayment plan has been introduced, challenged in court, and eliminated, new borrowing limits and repayment plans have been introduced, repayment plan applications have been paused and restarted, new Buy Back opportunities came to be, and deadlines are on the horizon for borrowers to ensure they have the most access to benefits over time. Even for experts, it can feel impossible to keep up.
This page will attempt to give you a rough overview of important news in the student debt world, but changes happen everyday – be sure to consult with StudentAid or your student loan servicer to see what applies to you and what doesn’t.
What We’re Watching
Last Updated: March 2026
The federal student loan system underwent significant changes in 2025 and continues to shift rapidly. Here’s what North Carolina’s 1.4 million borrowers should understand about current developments.
The Default Cliff and Collection Actions
In October 2025 alone, approximately five million student loan borrowers likely defaulted on their loans. Combined with the five million already in default, roughly one-quarter of borrowers now face the devastating fallout of default. If current trends hold, as many as 13 million borrowers may be in default by the end of 2026. For context, during the subprime mortgage crisis, the delinquency rate peaked at just under 12 percent, and policymakers recognized that as a market failure requiring intervention. The current 25 percent default rate is nearly unprecedented in a federal credit program of this size. This crisis was entirely preventable. This crisis reflects the impossible situation borrowers face: fewer affordable repayment options, processing delays that prevent enrollment in income-based plans, and rising living costs that leave no room for student loan payments.
On January 16, 2026, the Department of Education announced a temporary pause on wage garnishment and tax refund seizures for defaulted borrowers, citing the need to implement new repayment reforms from the One Big Beautiful Bill Act. However, this pause is explicitly temporary and collections will resume once new systems are in place, potentially seizing up to 15% of borrowers’ after-tax wages, including the Earned Income Tax Credit and Social Security checks. The law does provide one positive change: borrowers now have a second opportunity to rehabilitate defaulted loans, whereas previously only one rehabilitation was allowed. Experts warn that default rates are likely to climb as repayment options narrow and economic pressures mount, threatening millions of Americans with wage garnishment, ruined credit, and seized tax refunds.
We’re watching this because the default rates are indicative of major impacts to not just individuals, but to our economy as a whole. And the pause on collections temporary, so it is only a matter of time before the default cliff truly hits.
You can read more about the default cliff and the startling statistics showing the impact on student loan borrowers in this report from Protect Borrowers, HERE.
You can read the most recent announcement pausing collections from the Department of Education, HERE.
One Big Beautiful Bill Act Overhauls Federal Student Loan System
Congress passed the One Big Beautiful Bill Act in 2025, fundamentally restructuring how Americans borrow and repay federal student loans in ways that make higher education more expensive and repayment less affordable. Beginning July 1, 2026, new borrowers will have only two repayment options: a standard fixed-payment plan or the new Repayment Assistance Plan (RAP). The law also caps annual borrowing for graduate students at $20,500 (or $50,000 for professional degrees like medicine and law) and limits Parent PLUS loans to $20,000 per year with a $65,000 lifetime maximum per student. These borrowing caps mean students will likely need to turn to riskier private loans to cover the gap between federal aid and the actual cost of college. Current borrowers can keep their existing payment plans until 2028, when most income-driven plans will sunset and force current borrowers into new, often more expensive options. The law also ended the tax exemption for forgiven student debt under income-driven repayment plans, meaning borrowers who reach forgiveness after January 1, 2026 will owe (unexpected) federal income taxes on the forgiven amount — sometimes called a “tax bomb.” Public Service Loan Forgiveness remains tax-free.
We’re watching this because while the laws are passed and final, the regulations determining how the new laws are applied are not yet, and opportunities for public comment will be available before they are. And what we do know already is troubling news for borrowers.
As explained in MDC’s breakdown of the OBBBA’s impact, these changes will have massive impacts to current and future borrowers, and will likely hit working class families the hardest at a time when affordability is already a major concern.
You can read more about the OBBBA updates to federal student loans on StudentAid.gov, HERE.
SAVE Plan Settlement and Repayment Plan Transitions
The SAVE income-driven repayment plan, which enrolled 8 million borrowers nationwide, has been in litigation-induced limbo since June 2024. All SAVE borrowers have been in administrative forbearance—making no payments and accruing no interest, but also not receiving credit toward Public Service Loan Forgiveness or income-driven forgiveness. In August 2025, the Department turned interest accrual on once again, meaning that all borrowers still in SAVE continue to sit in limbo without clarity, all while their balances continue to grow. The Department of Education reached a proposed settlement to end the SAVE plan in December 2025, and once finalized, borrowers will need to transition to alternative repayment plans. Processing delays for income-driven repayment applications have created backlogs affecting hundreds of thousands of borrowers trying to enroll in or switch between plans.
We’re watching this because the end of SAVE means that borrowers will need to switch to other plans, which continues to be questionable as the Department of Education struggles with hundreds of thousands of applications in backlog. This change is also important because borrowers are likely to see their payments each month go up significantly — SAVE was the most affordable repayment plan available, and even the cheapest alternative options are likely to be a jump.
You can read more about the end of the SAVE plan and see the most recent updates on StudentAid.gov, HERE.
Multiple Lawsuits Over Servicer Failures and Borrower Protections
The American Federation of Teachers (AFT) has filed multiple lawsuits addressing widespread student loan servicing failures that have cost borrowers billions and derailed paths to loan forgiveness. AFT sued MOHELA (a major federal loan servicer handling 8 million borrower accounts) in July 2024 over systematic failures including a “call deflection scheme” that made it nearly impossible for borrowers to get help, billing errors that overcharged borrowers, and deliberate delays in processing Public Service Loan Forgiveness applications for teachers and other public servants. The union amended this lawsuit in January 2026 with additional allegations showing MOHELA’s failures are not isolated mistakes but systemic business decisions.
AFT also sued the Department of Education in March 2025 after the agency quietly removed the online application for income-driven repayment plans and ordered servicers to stop processing applicationsm, effectively blocking borrowers from accessing lower payments and forgiveness programs. This lawsuit is now paused while the department publishes monthly reports on application processing. The reports have made information more available, but the news is troubling: January’s status report covering through December 31, 2025 shows 734,221 unprocessed applications for Income-Driven Repayment, and 83,370 unprocessed applications for PSLF Buy Back (a mechanism to achieve PSLF forgiveness only required due to the SAVE forbearance to begin with). At some points, the backlog crept up to more than 1.5 million unprocessed applications.
A separate class action lawsuit, Maldonado v. MOHELA, alleges the servicer failed to implement loan discharges ordered by the Department of Education for students defrauded by for-profit colleges, continuing to collect on and report debts that were supposed to be canceled—leaving defrauded students still paying for worthless degrees.
We’re following these cases because we know borrowers are stuck in limbo and they aren’t able to depend on their loan servicers for even the most basic of functions. Responsible borrowers who want only to pay their debt face account errors, miscalculated payments, and bad guidance at a level that would likely never be acceptable in other borrowing spaces such as mortgages. We hope to see these cases bring the situation to light, and help borrowers eventually get access to the services and repayment plans they should have had access to all along.
You can read more about the AFT cases from their website. Read about the case against the Department of Education HERE. And read about the case against MOHELA HERE.