Federal Student Loans

The federal government began guaranteeing student loans under the Higher Education Act of 1965 and has lent directly to students through the Direct Loan program since 2010, when banks were removed from the system. Undergraduates can borrow subsidized and unsubsidized loans with annual and lifetime limits, graduate students and parents can borrow more, and interest rates are set each year based on Treasury rates. About 43 million borrowers owe roughly 1.7 trillion dollars, making student debt the largest category of consumer debt after mortgages.

Borrowers have long been able to choose income-driven repayment plans that cap payments as a share of income and forgive remaining balances after 20 or 25 years. In Biden v. Nebraska in 2023 the Supreme Court struck down a plan to cancel up to 20,000 dollars per borrower, and courts later blocked the SAVE repayment plan, which then ended. Collections on defaulted loans, paused since 2020, resumed in May 2025, and about 9 million borrowers were in default in 2026.

The 2025 budget law ended new Grad PLUS loans as of July 1, 2026, set new caps on graduate and parent borrowing, and created a new Repayment Assistance Plan with payments of 1 to 10 percent of income, while phasing out most other income-driven plans by 2028. The administration also began moving loan servicing and collections from the shrinking Education Department to the Treasury. Supporters say the changes curb runaway borrowing and tuition. Critics say they make graduate school harder to afford and raise payments for many borrowers.