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Millions of student-loan borrowers risk being driven into a ‘shadow’ market of costly private lenders, a new report says

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Risky lending products could expand as federal student-loan repayment changes begin to roll out, a new report says.

On Tuesday, advocacy group Protect Borrowers and left-leaning think-tank The Century Foundation released a report on how the private student-loan industry will shift once President Donald Trump’s federal repayment overhaul is implemented.

The report found that 40% of Americans would be denied private student loans from traditional, prime lenders due to low credit. It could drive them to consider the “shadow” student debt market, which is made up of subprime lenders, including personal loans, debt owed directly to schools, and “Buy Now, Pay Later” products, all of which can come with high interest rates and aggressive debt collection.

Those products could get a boost from Trump’s “big beautiful” spending legislation, which included new caps on borrowing for advanced degrees. Previously, students could borrow up to the full cost of attendance through federal student loans. Under the new caps, programs with higher tuition could push borrowers to seek private financing or forgo those programs altogether.

Jennifer Zhang, Protect Borrowers’ policy, research, and data analyst, told Business Insider that traditional private lending limits will “hurt the people who arguably would stand to gain the most from the federal student loan program” because students from low-income backgrounds and students of color often have limited access to credit.

“The pivot toward private lending is going to deprive students of access to college and to make their choice,” Zhang said. “Either you can give up on the dream of higher education, or try to look for lenders that are increasingly predatory and offer highly predatory and expensive loans to people who are the most desperate.”

During negotiations on Trump’s spending legislation, the Department of Education said that borrowing caps for advanced degrees would prevent borrowers from taking on unaffordable debt, and could push colleges to lower tuition. Major private lenders have said they’re prepared for an influx of federal borrowers; Jonathan Witter, CEO of Sallie Mae, said during a January earnings call that he’s “excited about the opportunity created by the recent federal student lending reforms.”

Some of those lenders also told Democratic lawmakers in February that, in anticipation of the influx, they’re committed to offering borrower protections. Sallie Mae said that its customers face “the highest periods of repayment stress” in their first 12-24 months of repayment, and it offers grace periods for those borrowers. SoFi, another major private lender, said it has “many options,” like grace periods and deferments, to help its borrowers avoid delinquency.

In a time when oversight over private student loans is diminished — including staff cuts at the Consumer Financial Protection Bureau, which brought enforcement actions against the industry — Zhang said the repayment changes are even more “dangerous.”

“The transition toward increased private lending is going to happen in a context where lenders know that the CFPB and the Department of Education are really not doing their jobs and looking for the lenders who are breaking the law,” Zhang said.

A shifting student-loan repayment landscape

With oversight lacking, the report had recommendations to protect borrowers from risky lending products. One is to require private student-loan companies to register with their state financial regulator, which would allow the state access to information on the lender’s performance and portfolio. Only eight states have passed legislation requiring private lenders to register with states, the report said.

The report also called for more federal and state funding toward higher education to prevent borrowers from relying on debt-based systems.

For now, the private student-loan industry could see increased demand. The Department of Education will begin implementing the repayment changes on July 1, including new income-driven repayment plans, and borrowers previously told Business Insider that they’re bracing for higher monthly payments.

At the same time, the department will transition more than 7 million borrowers off of the SAVE student-loan repayment plan this summer, after a recent settlement to end the program early. SAVE would have been phased out in 2028 — now, millions of federal borrowers will be navigating a new repayment system, and some might turn to the private market.

A group of Democratic lawmakers led by Sen. Elizabeth Warren released an analysis in January calling for increased oversight over the industry due to the looming repayment changes.

They wrote that private lenders preparing for an influx of federal borrowers “underscore an urgent need for oversight of the private lending market as these companies prepare to cash in on the Administration’s agenda.”




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Millions of student-loan borrowers are kicked off of Biden’s key affordable repayment plan in a surprise court reversal

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The roller coaster ride for borrowers enrolled in a key affordable repayment plan continues.

On Monday, the 8th Circuit directed a district court to approve President Donald Trump’s proposed settlement with the state of Missouri to eliminate the SAVE student-loan repayment plan.

The plan has been embroiled in a legal back-and-forth for years. Most recently, a district court declined to rule on the proposed settlement, which some advocates and lawmakers saw as a win for borrowers and urged the Department of Education to carry out relief under SAVE.

However, the 8th Circuit’s ruling means that, once approved, the department will move forward with the settlement and require enrolled borrowers to transition to a new plan.

“In the coming weeks, the Department will issue clear guidance on next steps for borrowers enrolled in the illegal SAVE Plan, including details regarding how borrowers can move into a legal repayment plan,” Nicholas Kent, the undersecretary of education, told Business Insider in a statement. “The Trump Administration will continue to realign the federal student loan portfolio to better serve students and taxpayers.”

The settlement would give borrowers “a limited time” to select a new repayment plan and begin repaying the loans. Once the settlement is approved, the department will not enroll any new borrowers in SAVE, it will deny pending applications, and move all enrolled borrowers to existing plans.

Advocates criticized the 8th Circuit’s ruling, saying it will push borrowers into unaffordable monthly payments.

“The millions of borrowers who had a right to lower monthly student loan payments and relief through SAVE will now face thousands of dollars in higher bills every year thanks to the right-wing campaign against borrowers,” Winston Berkman-Breen, legal director at advocacy group Protect Borrowers, said in a statement.

SAVE was created by former President Joe Biden in 2023 and intended to give borrowers cheaper monthly payments and a shorter timeline to debt relief. The plan has been blocked since the summer of 2024 due to litigation from GOP-led states, including Missouri, which said that the relief through SAVE was unconstitutional.

This ruling pushes SAVE borrowers off the plan earlier than scheduled. Trump’s “big beautiful” spending legislation called for the plan to be phased out by 2028, giving enrolled borrowers more time to prepare for higher payments on a new plan.

Have a story to share? Contact this reporter at asheffey@businessinsider.com.




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Ayelet Sheffey

Trump’s attempt to quickly axe a key affordable student-loan repayment plan gets shut down in court

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Student-loan borrowers might not lose a key affordable repayment plan just yet.

On Friday, a court dismissed a proposed settlement announced by the Department of Education and the state of Missouri in December that would have eliminated the SAVE income-driven repayment plan ahead of schedule.

President Donald Trump’s “big beautiful” spending legislation called for phasing out SAVE by 2028. This latest update means that the department has to stick with that timeline, and it cannot eliminate the plan before 2028 without court approval or a lengthy negotiated rulemaking process.

John Ross, Missouri’s district court judge, wrote in his ruling that the settlement was not presented to the court, and that federal law allows courts to “exercise jurisdiction only over cases or controversies,” which he said does not exist in this case because both the Department of Education and Missouri have agreed on the outcome they’re seeking without debate.

“It appears that there is no longer a live case or controversy sufficient to authorize the Court to enter a judgment on the merits,” Ross wrote.

The SAVE plan was created by former President Joe Biden in 2023, and it intended to give borrowers cheaper monthly payments with a shorter timeline to loan forgiveness. The plan has been halted since 2024 due to lawsuits seeking to block it, and while Trump’s “big beautiful” spending legislation included a provision to eliminate SAVE over the next few years, the settlement would have done so much sooner than anticipated.

Ross also wrote in a footnote that it’s “not lost on the Court that millions of borrowers who enrolled in the SAVE plan have patiently awaited clarity while this litigation has proceeded. However, that clarity must come from the Department of Education, and not from this Court, which is no longer empowered to weigh the merits of a case that is now moot.”

Winston Berkman-Breen, legal director at advocacy group Protect Borrowers, said in a statement that the court’s ruling means the department can now move forward with relief under the SAVE plan.

“As of today, not only is there no legal barrier to delivering those rights through the SAVE plan, but the Secretary has a legal obligation to do so,” Berkman-Breen said. “The U.S. Department of Education must immediately identify borrowers who are eligible to have their loans cancelled under SAVE and instruct their student loan servicers to cancel those loans.”

A Department of Education spokesperson told Business Insider that the department is evaluating the court’s decision.

The department said in December that, should the settlement be approved, it would not enroll any new borrowers in the SAVE plan, it would deny pending applications, and move the 7 million enrolled borrowers to other repayment plans. Those borrowers would have a limited time to prepare to make their payments.

Have a story to share? Contact this reporter at asheffey@businessinsider.com.




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Student-loan borrowers are falling behind on payments at record levels

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Student-loan borrowers are falling behind on payments at record levels.

A new report by left-leaning groups, the Century Foundation and Protect Borrowers, found that nearly 9 million student-loan borrowers — or one out of every five — are in default, which typically occurs after a federal borrower hasn’t made a payment for more than 270 days.

Additionally, the report said that one in four borrowers with a payment due is in delinquency, meaning they’re behind on payments, and those borrowers have seen their credit scores decrease by 57 points on average over the first three quarters of 2025. A drop in credit can cause borrowers to lose access to various forms of credit or loans, making it difficult to afford basic necessities, the report said.

This data follows President Donald Trump’s restart of collections for defaulted borrowers in May 2025 after a five-year pause. While the Department of Education announced in January that it was pausing wage garnishments and tax refund seizures for defaulted borrowers, it’s unclear when the pause will lift, and more borrowers could be at risk of facing those consequences.

The report said that the pause is “welcome” but “puts a band-aid on a serious wound.”

“Considering the nation’s worsening affordability crisis and unprecedented number of borrowers entering default, resuming garnishments would be cruel and economically reckless,” the report said.

Ellen Keast, the Department of Education’s press secretary for higher education, attributed the rise in delinquency and defaults to various relief measures that the Biden administration put in place, including the “on-ramp” to repayment, during which the department did not report any missed payments to credit agencies.

“The idea of a sudden increase in delinquencies in student loans is a misnomer — the Trump Administration is once again reporting full and accurate data on student loan repayment instead of extending so-called flexibilities related to a pandemic that ended five years ago,” Keast said. She added that the department “will continue to support regular, on-time repayment.”

Options for defaulted student-loan borrowers

The Department of Education released guidance on February 18, urging institutions to reduce student default rates. The guidance included updated nonpayment rates, which are the percentage of borrowers who entered repayment between January 2020 and May 2024 with federal student loans more than 90 days delinquent. Over 1800 institutions have nonpayment rates at or above 25%, the guidance said.

“Student borrowers have an obligation to repay their loans, but institutions also share a responsibility to ensure their students are prepared to enter repayment and understand the consequences of nonpayment,” Undersecretary of Education Nicholas Kent said in a statement. “Institutions cannot benefit from taxpayer dollars while ignoring the fact that a significant share of their students are not well-prepared to repay their loans.”

The department’s looming repayment changes could make things more difficult for some borrowers. Trump’s “big beautiful” spending legislation eliminated existing income-driven repayment plans and replaced them with less generous options, meaning borrowers will face longer timelines to loan forgiveness and likely higher monthly payments.

The department also announced a settlement to eliminate Biden’s SAVE plan, which would have allowed for cheaper monthly payments and a shorter timeline to relief. The report said that SAVE borrowers are “more financially fragile than the average borrower,” citing data from the Biden administration showing that more than half of them qualified for $0 monthly payments, putting them at greater risk of delinquency and default.

Student loan borrowers have a few options to get out of default. One option is loan rehabilitation, in which a borrower must contact their servicer and enter an agreement to make nine payments over 10 consecutive months. While wage and benefits garnishment will continue during this time, the default status will be removed from the borrower’s credit report once rehabilitation is complete.

Another option is loan consolidation, in which a borrower can apply to consolidate a defaulted student loan into a federal consolidation loan. After consolidation, the borrower would become eligible for federal benefits, but the default status would remain on the borrower’s credit history.




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More student-loan forgiveness is here. You have one month to opt out.

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Some student-loan borrowers are getting an early Valentine’s Day gift from the Department of Education.

Earlier this week, another batch of borrowers who have completed at least 20 years of payments on an income-driven repayment plan received emails from the department with the subject line: “You’re eligible to have your student loan(s) discharged.”

The email, which multiple borrowers shared with Business Insider, said that the department will “work with your loan servicer to process your IDR discharge over the next several months.” Borrowers do not need to take any action to receive the relief; however, those who wish to opt out of the relief have to contact their servicer by March 5 to specify that they do not want the discharge.

Borrowers might choose to opt out of the relief to avoid state tax liability, the email said. Doing so would require them to continue paying back their loans.

After the March opt-out date, the department will send borrowers’ information to their servicers, and the servicer will notify the borrower once the relief has been processed. The email said that most borrowers will see the relief processed within two weeks, but it could take more time for some borrowers.

Why student-loan borrowers are getting debt relief

This student-loan forgiveness comes after the expiration of 2021 provision from the American Rescue Plan that made forgiveness tax-free. Borrowers who become eligible for relief after January 1, 2026, could be hit with thousands of dollars in taxes. However, the Department of Education previously said that it will consider the date a borrower reached their payment threshold as the date of the relief, so even if they were part of the latest batch of emails, if they completed their last payment in 2025, they should not face additional taxes.

The Department of Education did not immediately respond to a request for comment from Business Insider on how borrowers can confirm their tax status on the latest loan forgiveness. However, the borrower’s servicer would typically notify the borrower of the relief’s effective date.

The student-loan industry overall is facing significant changes in the coming months. Beginning in July, the department will begin implementing its repayment overhaul, which President Donald Trump signed into law as part of his “big beautiful” spending legislation. It includes new income-driven repayment plans and borrowing caps for advanced degrees. Borrowers who enroll in the new plans would have longer timelines to forgiveness and could face higher monthly payments.

The department has maintained that its goal is to simplify repayment and ensure that borrowers do not take out student loans they cannot afford to repay.

“We have a clear path forward to fulfill the President’s promise of making higher education more affordable and ensuring that every professional in America—from teachers and nurses to physicians and clergy—can pursue their careers without taking on debt they may never be able to repay,” Undersecretary of Education Nicholas Kent said in a recent statement.

Have a story to share? Contact this reporter at asheffey@businessinsider.com.




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Ayelet Sheffey

Trump’s sweeping student-loan repayment overhaul goes into effect in the new year. Here’s what’s changing.

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The new year is bringing a host of new changes for millions of student-loan borrowers.

Beginning in July 2026, the student-loan provisions signed into law in President Donald Trump’s “big beautiful” spending legislation are set to begin taking effect. Those provisions include rolling out new student-loan repayment plans, new borrowing caps, and eliminating existing income-driven repayment plans, which could result in higher monthly payments for borrowers.

Here’s what the Trump administration has in store for student-loan repayment in 2026.

New student-loan repayment plans

Beginning in July, the Department of Education plans to begin its process of eliminating existing income-driven repayment plans and replacing them with two options: a standard repayment plan and a new Repayment Assistance Plan.

The standard repayment plan would set fixed payments for borrowers over a 10 to 25-year period based on the borrower’s original balance. The Repayment Assistance Plan would serve as the income-based option for borrowers; it would set payments at 1% to 10% of the borrower’s income, with a minimum monthly payment of $10 and forgiveness after 30 years.

It’s less generous than the existing income-based repayment plan, which forgives balances after 20 or 25 years, and former President Joe Biden’s SAVE plan, which would forgive balances after as few as 10 years of payments.

Borrowers who took out loans before July 1, 2026, will have until 2028 to enroll in RAP before the other plans phase out. Borrowers who take out loans after July 1, 2026, will only have RAP and the standard repayment plan as available repayment options.

Borrowing caps for advanced degrees

In addition to new repayment plans, Trump’s spending legislation eliminated the Grad PLUS program, which allowed graduate and professional students to borrow up to the full cost of attendance for their programs.

It also implemented new borrowing caps for borrowers seeking advanced degrees. Graduate students would have a cap of $20,500 a year or $100,000 over a lifetime, and professional students would have a cap of $50,000 a year and $200,000 over a lifetime.

The Department of Education also proposed instituting a revised definition of a “professional” program, which included 10 programs that would qualify for the higher borrowing cap, including medicine, law, and dentistry. The new definition was a key point of contention with stakeholders who negotiated the terms with the department because the revised definition leaves out advanced programs like nursing, some of which have tuition that is above the proposed caps.

Eliminating the SAVE plan

Trump’s spending legislation included eliminating the SAVE plan as part of its phase-out of existing income-driven repayment plans by 2028. However, his administration announced a proposed settlement with the state of Missouri in December that would end the SAVE plan as soon as the court approves the settlement.

It means that the 7 million borrowers enrolled in SAVE would have a limited period of time to find a new repayment plan and restart their monthly payments at a higher amount. Additionally, the department said that it would deny pending applications to SAVE, which would include 450,000 borrowers who have expressed interest in enrolling in the plan.

Expanding eligibility for income-based repayment

The Department of Education is expanding eligibility for income-based repayment plans by removing the requirement of partial financial hardship. Prior to Trump’s spending legislation, borrowers seeking to enroll in an IBR plan were required to have a monthly payment based on their income that was less than the amount needed to pay off their full balance over 10 years.

Removing that requirement, which the department said would be completed in December 2025, means that borrowers with higher incomes would be eligible to enroll in IBR. Additionally, the department said that servicers would hold IBR applications that would otherwise be denied, and the applications would be processed once the updates to IBR were completed.




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