Student Loan Chaos Grows Amid Policy Proposals And Errors

A major student loan reform package backed by Republican lawmakers failed to clear a key hurdle in Congress on Friday, adding uncertainty to the potential overhaul of federal loan repayment. The bill may go through some changes, and a new vote is scheduled for Sunday night. However, even if it does pass, there still may be changes before it's finalized.

At the same time, new data from the Federal Reserve revealed slipping credit scores among student loan borrowers, and the Department of Education disclosed a staggering backlog of income-driven repayment applications in its first court-mandated status report.

The week wrapped up with another blow to borrower confidence: automated and incorrect email notices sent by servicers warning SAVE plan borrowers that their forbearance was ending, even though those protections are expected to remain in place well into 2026.

Together, these developments point to a chaotic moment for federal student loan policy, with court battles, administrative delays, and system glitches leaving millions unsure of what to expect next.

Student Loan Reform Plan Stalls

The Republican-backed RAP proposal, designed to replace SAVE and other income-driven repayment plans, failed to pass the House Budget Committee as part of the "Big Beautiful Bill". The legislation would have required the Department of Education to transition all borrowers in repayment to a newly defined income-based plan and barred the agency from independently modifying repayment regulations going forward.

The bill would have significantly reshaped the structure of federal loan repayment, while placing hard limits on the Department’s future authority.

But after several Republicans voted no, it did not clear the committee, signaling that more negotiations (or a new approach entirely) may be necessary if lawmakers want to move forward.

Remember, the student loan and higher education proposals are just one portion of the bill. There's also major changes to tax laws, additions of a new MAGA account, and potential cuts to Medicaid. All of these proposals combined make this a challenging budgeting to move forward.

Plus, we still need to wait on what the Senate version looks like.

Credit Scores Decline For Borrowers

A separate report from the Federal Reserve, published this week, showed a troubling trend: credit scores among federal student loan borrowers have fallen since monthly payments resumed in late 2023. This trend was exacerbated by the resumption of credit reporting, and the start of collection activity on student loans.

This trend suggests that the financial strain of student debt may be weighing more heavily on households than during the forbearance period, despite the availability of plans like SAVE that offer low or even zero-dollar payments.

The drop in scores could also reflect growing confusion over enrollment and servicing issues, including delays in processing IDR applications and income recertifications.

IDR Backlog Reaches Nearly 2 Million

In a filing made public in the American Federation of Teachers lawsuit over delays in SAVE plan implementation, the Department of Education acknowledged nearly 2 million pending IDR applications as of April 30, 2025. The status report also revealed that just over 79,000 IDR applications were processed in the month of April.

The same filing showed more than 49,000 pending PSLF Buyback requests, a relatively new option that allows borrowers to retroactively count qualifying months by making a lump-sum payment for months spent in deferment or forbearance periods.

Though the raw numbers are large, we believe that a substantial number of the applications may not be eligible to be processed until the SAVE legal challenges are resolved. Many of the applications were submitted by borrowers attempting to join the SAVE plan but are currently paused by court order.

Here's a breakdown and response video:

Servicer Emails Add To The Confusion

Toward the end of the week, reports began to surface across borrower forums and social media platforms that MOHELA and other loan servicers had sent automatic emails alerting SAVE plan borrowers that their forbearance would end in May or June.

The emails, which included payment due dates and auto-debit notices, alarmed borrowers who believed they were still covered by administrative forbearance due to the injunction blocking the SAVE plan. Several borrowers who contacted their servicers were told the messages were automated and sent in error.

As of now, most SAVE participants should expect their accounts to remain in administrative forbearance, with no new payments due until late 2025 or 2026, depending on how long the legal case remains unresolved.

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