Student loan borrowers face glitches before July 1 changes: Advocates

July 1 is a significant date for tens of thousands of Americans who hold federal student loans.

That’s when changes to the U.S. Department of Education’s menu of repayment and relief options under the “one big beautiful bill” tax-and-spending package take effect. It’s also a key date the Trump administration has set for nearly 7 million student loan holders to begin exiting the defunct Biden-era repayment plan Saving on a Valuable Education, or SAVE, and to enroll in another plan.

But student loan borrowers are encountering technical issues and misinformation in the weeks leading up to the massive changes, advocates say.

“This is making a difficult system even more unmanageable, and borrowers shouldn’t be the ones who suffer,” said Carolina Rodriguez, the director of the Education Debt Consumer Assistance Program in New York, an organization that helps student loan holders navigate repayment.

The current issues stem, in part, from the Trump administration’s move last year to terminate nearly half of the staff at the Education Department, including many of the people who assisted borrowers, said Rich Williams, a former deputy assistant secretary for the agency.

“The Department is executing significant, complicated repayment changes on tight deadlines, with new plans and increasingly important fine print,” Williams said. “That would be a major challenge for even a well-resourced agency.”

Over 42 million Americans hold federal student loans, and the outstanding debt exceeds $1.6 trillion, according to the Congressional Research Service.

Trump’s domestic agenda eliminates several of the U.S. Department of Education’s long-standing student loan repayment plans and establishes two new plans. The legislation also sets new restrictions on when borrowers can pause their loan payments.

But some current borrowers are struggling to access an income-driven repayment option that should still be available to them, called PAYE, or the Pay As You Earn plan, several experts who work with borrowers told CNBC.

“Borrowers have come to us reporting that PAYE isn’t appearing as an option,” said Williams, who is also the chief customer officer at Summer, a company that provides guidance to loan holders.

Rodriguez said her clients are experiencing the same issue: “Some borrowers are eligible for PAYE, and it is not displaying it.”

Borrowers who are unaware of the PAYE option or are unable to enroll in the plan could get stuck with a higher bill on other repayment plans, Rodriguez said. For example, federal student loan borrowers who hold loans prior to July 1, 2014, need to pay 15% of their discretionary income each month on the Income-Based Repayment plan, or IBR. The monthly bills on PAYE, on the other hand, are capped at just 10% of a borrower’s discretionary income.

“The Department has been, and continues to be, working toward a July 1 implementation, and we expect to meet that launch date,” Ellen Keast, press secretary for higher education at the Education Department, said in a statement to CNBC.

Keast did not address CNBC’s questions about the specific issues advocates say borrowers are experiencing.

There are other problems with Federal Student Aid’s income-driven repayment plan, or IDR, application, Rodriguez said.

For example, many borrowers are getting incorrect estimates of what their bill would be on IBR, Rodriguez said. Under the terms of IBR, borrowers pay 10% of their discretionary income each month if their loans were taken out on or after July 1, 2014. That share rises to 15% for borrowers with loans before that date. 

Yet several of her clients, whose incomes vary, are all being told their monthly IBR payment will be $50, she said.

“There is zero logic to that payment amount,” Rodriguez said. “I have clients who are making $60,000, $75,000, $265,000, and they’re all getting $50.”

As a result, borrowers could enroll in IBR with that information and then find that they can’t afford their actual payment, which could be hundreds or even thousands of dollars more than on other plans, she said.

But doing so could cause borrowers to lose progress on their path to debt forgiveness, such as under the terms of their IDR plan, Mayotte said. Borrowers who consolidate after July 1 will also lose access to several student loan repayment plans under the “big beautiful bill” rules, she added.

“The issues with the FSA tools and messaging are troubling, especially now as borrowers try to navigate their options ahead of the budget bill changes,” Mayotte said.

These problems at Federal Student Aid and on the IDR application come as the Education Department sets deadlines for the nearly 7 million borrowers who are still enrolled in the SAVE plan to move into a different repayment option. A federal appeals court ordered the end of SAVE earlier this year.

“SAVE borrowers have to move,” Nicholas Kent, a top official at the Department of Education, told CNBC last week.

Trump officials said in late March that SAVE enrollees will get roughly 90 days from July 1 to exit and select a new repayment option. Those announcements could come on different dates throughout the summer, Kent said: “We don’t want to overwhelm servicers.”

But there’s already a massive backlog of applications from more than half a million student loan borrowers waiting to enter a new repayment plan, according to a recent court filing.

“We’re on the verge of transitioning 7 million borrowers from SAVE, while others scramble to recertify IDR plans,” Rodriguez said. “And the one application they all need is broken.”