Betsy Mayotte: [00:00:00] Now anybody that does borrow on or after 7/1/26, whether it’s their first loan or their 17th loan, they will only have access to a new repayment plan called the repayment assistance Plan of the RAP. And the new standard plan. And the new standard plan works like consolidation works today, where the, you’re going to make the same payment every single month, but the term is going to depend on how much you owe.

So if you owe less than 25,000, it’s still going to be a 10 year term. I think the next tier is between 25 and 50,000. You’re going to have a 15 year term.

Jonathan Hughes: Hello everyone and welcome to the MEFA Podcast. My name is Jonathan Hughes, and that was our guest on the show, Betsy [00:01:00] Mayotte, a good friend of ours and one of the country’s leading experts on student loans and student loan policy. And that is what we are going to be talking about today, because there’s been a lot of changes to the federal student loan programs just with the passage of the Big Beautiful Bill alone.

But more than that, I think it’s safe to say that the way students and families pay for college will be impacted quite a bit from all these changes. In fact, there’s so much to say and it applies to so many that we’re going to take two episodes to bring you our entire conversation. Today, we’ll focus primarily on the changes to loan repayment.

To loans and delinquency and default, how those things are reported to credit bureaus, what your options are, and the big changes to the various repayment plans that you can get on if you’re a federal loan borrower. As always, I will be back after the interview portion to wrap things up. So let’s get into it and get reacquainted with our guest.

Betsy Mayotte: So I’m Betsy Mayotte. I’m the president and founder [00:02:00] of a nonprofit called the Institute of Student Loan Advisors, TISLA. I founded TSLA because I found that there was a real need for consumers to have access to free expert student loan advice, especially from an entity that had no connection to their loans at all, so that they knew they could be assured that advice was neutral as well.

I’ve been working in the student loan industry in a compliance or and advocacy role for over 25 years. Student loans are my one superpower that makes me really boring at parties. But I love doing it and over the years I’ve helped thousands of borrowers with their student loans. I’m also really active on the policy side and, that’s my jam.

Jonathan Hughes: I, again, we are really lucky to have you here because I can’t think of anybody better to talk about everything that’s going on with student loans, and there’s a lot going on with student loans these days. I want to start with the changes to loan collection and credit reporting [00:03:00] policies that were a few minutes a few minutes, a few months before the sort of changes that we’re gonna be talking about in the Big Beautiful Bill.

So what has changed? From the Biden administration now to the Trump Administration in terms of what’s going on with loans in default or loans in delinquencies and credit reporting and all that stuff that started during COVID.

Betsy Mayotte: Yeah. So I want to set the stage for this a little bit because especially recent grads that aren’t used to the way things.

Always were this, look, a lot of what’s happened in the past few months looks political and it actually really isn’t. Prior to COVID, the thought of there being a pause on student loan payments wouldn’t even have occurred to anybody. There’s no provision for it in the law. Prior to COVID, it never would’ve occurred to anybody that they would’ve stopped doing what we call involuntary collections on a defaulted federal student loan.

And by involuntary [00:04:00] collections, wage garnishment. Social security, offset tax refund, offset, and so on. Prior to COVID, it never would’ve occurred to anybody that there would be a scenario where if someone became delinquent on their federal student loan, that they wouldn’t be reported to the credit bureau.

And the reason for that isn’t because. People are mean. It was literally because federal law requires the Department of Education to collect on these loans. But then COVID happened, and part of COVID is they passed a law that, that, and I’m oversimplifying this, but they passed a temporary law that said normally the president of the United States can’t do anything contrary to federal law, but under this national emergency that is COVID, we’re going to, we’re going to let he or she, do some weird things for a limited amount of time to get this country through this COVID crisis. And that’s why we saw a pause on collecting all federal student loans, whether they [00:05:00] were in default or not. From March of 2020 until the fall of 2023. And then from there they recognize we can’t just turn the switch back on.

There’s going to be bumps in the road and we don’t want consumers to suffer from those bumps in the road. So we’re going to do this on-ramp period from, so people are going to have to start paying again in the fall of. 2023, but we’re going to give them a year where if they go delinquent, we’re not going to charge ‘them a late fee.

We’re not going to report them to the credit bureaus. All of that time has now passed. And so now starting in, people started seeing it affect their credit in December of 2024, January, 2025, where if you became 90 days delinquent on your loans or more, once again, it is going to be reported to the credit bureaus.

So we’re back to. Normal, for want of a better word. And then I was actually surprised they didn’t start collecting on defaulted loans prior to this, but [00:06:00] they announced in May that they are, they were going to start involuntary collections on defaulted loans again as well. Now what that means is wage garnishment.

I haven’t seen anybody get there quite yet, but any minute I expect to see people who actually had money taken out of their paycheck. Remember, the government doesn’t have to sue you for to get that right to do that. They can just do it. I have seen people have had their tax refunds taken. Now since the May announcement, the department has also announced that they’re going to hold off on Social security garnishment for now, but they can resume that at any time.

So again, just to recap it and be clear so people understand what we saw happen on the cessation of all these things over the last four or five years was an anomaly, and we will probably never see it again. And it’s not that the White House, that this White House has decided, we’re going to go after the people, this would’ve happened regardless of who had won the presidential election.

Jonathan Hughes: Yeah. I think that’s important [00:07:00] to, to say. And also, I wonder if you could just talk about a little bit what the differences between delinquencies and default, and if you are looking, if you are in default and you’re concerned, what are some of the options that you can avail yourself of?

Betsy Mayotte: That’s a really good question because I found there’s a lot of confusion there. Federal loans are a unique animal in the consumer credit area for most consumer credit products, whether it be a credit card or your mortgage or your car loan, or even a private student loan, if you’re a day late or 30 days late, you’re considered in default.

And it’s probably going to affect your credit if you’re at least 30 days late. Federal student loans are a little more forgiving. You, it doesn’t, you’re considered past due and you owe the payments, but they don’t report it as delinquent to your credit report unless you’re 90 days past due or more.

And so at that point, you’re delinquent and it’s affecting your credit score. You’re not considered in [00:08:00] default on your federal student loan until you reach 270 days past due or more, and it gets a little convoluted. At that point, you’re technically considered in default at day two 70, and that means that now you’re not eligible for the lower payment options and deferments and stuff, but you can still rescue it, grab it by the scruff of the neck and pull it away from the edge of the cliff at that point.

Right around day between day 330 and day 360 is when they actually move the loan from your servicer to the Department of Education’s collections unit. And at that point you have fallen off the cliff and hit the ground, and that’s when all the really bad things can happen. The wage garnishment. The tax refund offset potential social security.

And the only way to save it is through either paying it in full, which if you could do that, you probably wouldn’t have defaulted in the first place. Or a process called loan rehabilitation.

Jonathan Hughes: Was going to ask about that.

Betsy Mayotte: Yeah, so rehab is where you [00:09:00] make nine consecutive on time payments in an amount that’s based on your income.

And once you do that, you’re taken out of default. The amount of collection costs is lowered. And they actually remove the default line from your credit report, like it was never there, which is awesome. Now they don’t remove the delinquencies that led up to the default. So the 90 day delinquency, the 120 day delinquency, but those aren’t as much of a whammy on your credit score as the default.

Big red, bold flashing default letters. So that’s a nice, so rehab takes a minute, but they’re asking you to show good faith. And that’s why it takes nine or 10 months to do. But the reward is lower collection costs and more importantly, getting that default line off your credit report like it was never there.

And of course, the loan’s back in good standing and you’re eligible for future financial aid again, and you’re eligible for PSLF and lower payment options and so on. If. [00:10:00] You don’t want to do that. You can also consolidate most, not everybody, but most people can consolidate out of default and that’s faster. It puts the loan back in good standing.

Your credit report will reflect that, but it will still show that at one point you were in default. So that’s going to hang around there for seven years, just like most credit dings do collection costs. I’ve talked about it a couple times. If you’re just making regular payments, the collection costs that they’re adding to a defaulted federal loan can be up to 24%.

Jonathan Hughes: Wow.

Betsy Mayotte: If you consolidate, they reduce that to, I forget if it’s 18 or 18 and a half. If you rehab, it goes down to 16.

Jonathan Hughes: Okay. And so if people have questions on how to do this or if they’re in that, they don’t know where they’re at, they know they’re in trouble. Maybe they’re at 270, maybe they’re between 270 and 360 like you said, in that sort of cliff danger zone area.

Maybe they were even before, they’re worried about it, but because they’re worried about it, [00:11:00] they haven’t. Engaged with it. So what is somebody to do? Who wants to change what’s going on?

Betsy Mayotte: Yeah, you definitely don’t want to default because it’s going to be more expensive for you both monthly when they start doing wage garnishment as well as in the long run because of the collection costs.

Never mind. That sort of trickle down effect of having a default in your credit report, it’s going to mean future credit for you is more expensive or unattainable. So I hear from people that say, I, I can’t afford the payments. And it’s if you can’t afford the payments, you’re really not going to be able to afford it if you default.

Yeah. I know it’s uncomfortable and some people actually get legit severe anxiety when they think about it, but the best thing you can do is deal with it and. Especially if you have anxiety. The best advice I can give for you is read all the things. Thankfully we’re in 2025 and there’s a lot of great information on the internet as far as what your options are for whether it be a lower payment option because you’re not in default yet, or more [00:12:00] information about rehab and consolidation and student aid.gov should be bookmarked for that.

As well as shameless plug our website, which is freestudentloanadvice.org. And so you can read all the things. You don’t have to talk to anybody to get yourself more comfortable understanding what your rights are and what your options are. You can also reach out to your loan servicer, especially, if you’re not in default, and they will walk you through what your options are too.

Make it so if you’re not delinquent yet, you don’t become delinquent or if you are delinquent, how to resolve that delinquency, maybe through forbearance or a lower payment option so you don’t default. Or you can email TISLA for free. And we always we’re happy. That’s why we’re here, is to provide free student loan advice.

If you are in default, your loan is very likely with the Department of Education’s default collections unit DMCS. And you will need to reach out to them to talk about rehab or talk about consolidating on a [00:13:00] default. If you’re not sure, if you’re in default, log on to student aid.gov and there will be no doubt if you’re in default, it will say Default, big red letters, danger Will Robertson. So there’ll be no doubt if you’re in default.

Jonathan Hughes: Okay. So that’s great advice. And now moving on from what has gone back to normal, so to speak, to things that have really substantially changed from normal practices. And we’re gonna go to the reconciliation bill, or as it’s sometimes called, the big beautiful bill.

And there’s a lot of changes, right? So it’s hard to know really where to start. There are changes with the Pell grant changes with 529s, changes with all sorts of loans. We’re going to talk about loans today. So why don’t we start with changes to the income based. Repayment plans or do you want to start somewhere else? Like how do you want to frame all the changes in this bill?

Betsy Mayotte: We might as well start with the repayment options. So Congress did this different than they’ve ever made changes to the student loan [00:14:00] programs before. Historically, when they’ve made changes in. In student loan law, they have grandfathered in existing borrowers to existing benefits, and they didn’t do that to that extent this time, which again, and I’ve researched student loan policy back to the seventies, they have never changed. Or removed benefits from existing borrowers.

Jonathan Hughes: And what does that mean? It means like if you had a loan, if you got a loan out while these options existed, they will al always exist for you.

Betsy Mayotte: Yeah. So the example I like to give is, so for bar, so back in 1993, there was a big piece of legislation that changed, made really significant changes to student loans, but.

The way they word it, and this is the way they’ve done it for all changes up until this budget reconciliation here in 2025, if you had loans prior to July [00:15:00] 1st, 1993, there was a whole bunch of deferments that you could get. You could get a deferment. If you adopted a child, you could get a deferment if you were on maternity leave.

You get a deferment if you were temporarily disabled as opposed to fully disabled. Now we’re all the way into 2025, more than 30 years later, those borrowers who still have outstanding loans prior to 93 can still get those deferments. They didn’t even take that away as part of this reconciliation bill.

The one that just happened, but this time they didn’t do it that way. So the way they did it this time is, so right now we have an embarrassment of riches as to the amount of different. Lower payment options that are available to existing borrowers. To go through the list really quickly, there’s the 10 year standard repayment, which is the plan you get if you don’t actively pick another plan when you first go in repayment.

There’s extended repayment, there’s graduated [00:16:00] repayment, there’s extended graduated repayment, there’s consolidation, there’s new IBR, old IBR, pay as you earn. Income contingent repayment. We used to have repay that transition into save the courts. Were in the process of killing save. Anyway what this budget reconciliation Bill does is for people with loans today that do not borrow again on or after July 1st, 2026, they can still have access to all the repayment plans that I mentioned, one exception.

Two exceptions: iCR, income contingent repayment and pay as you earn are being phased out, effective July 1st, 2028.

Jonathan Hughes: For everybody.

Betsy Mayotte: For everybody. Borrowers that have loans today can access all the plans I mentioned a minute ago. They can even apply and get on ICR and pay as you were today.

But if they are on pay as you or ICR as of July 1st, [00:17:00] 2028, the department event’s going to force them onto another plan. Now, if you take out a new loan or consolidate on, or after July 1st, 2026, you lose access to all of those things. So that new borrowing contaminates your existing loans, and that’s not the way Congress has done things ever before, and I think it’s going to cause a lot of people to fall. To accidentally lose access to those plans because they don’t realize it.

Jonathan Hughes: If you have existing loans that are on that program and you borrow again, you just can’t, you lose your access to those programs

Betsy Mayotte: if you borrow again on or after 7/1/26. If they borrow again tomorrow, they’re fine. If they borrow again on or after 7/1/26, then they lose access to all those plans now.

Now, anybody that does borrow on or after. 7/1/26, whether it’s their first loan or their 17th loan, they will only have access to a new repayment plan [00:18:00] called the repayment assistance plan of the RAP. And the new standard plan. And the new standard plan works like consolidation works today, where the, you’re going to make the same payment every single month, but the term is going to depend on how much you owe.

So if you owe less than 25,000, it’s still going to be a 10 year term. I think the next tier is between 25 and 50,000. You’re going to have a 15 year term. And it’ll go up to, I think it’s a maximum of 25 year term for people that owe over. I can’t believe I don’t have this memorized yet. I think it’s for people that owe a hundred thousand.

And then the RAP plan and a plan based on income. And if your adjusted gross income is less than 10,000, your payment’s going to be $10 a month. If your adjusted gross income is between 10 and 20,000, they’re going to use 1% of your [00:19:00] AGI and then divide that by 12 and that’s going to be your monthly payment.

If your a GI is between 20 and 30 grand, they’re going to use 2% of your AGI and it goes up and $10,000 increments. It maxes out at people that have an a GI of a hundred thousand or more. They’re going to use 10% of their income for that. And then again, they divide that by 12. Now, the RAP plan also has a forgiveness component, just like the existing income driven plans do, but that’s after 30 years, whereas the existing income driven plans have a forgiveness component after 20 or 25, 10 if you’re pursuing public service loan forgiveness.

It’s important to note that all the income driven plans, including this new RAP plan, they all cross pollinate with each other. So if you do end up by the way, old borrowers are also going to be able to access the RAP if they choose to. So let’s say you’re on pay is your right [00:20:00] now, and when it comes 2028 and you have to leave pay, and you’re looking at the different plans and the RAP is actually cheaper for you.

The credits that you’ve already accrued under pay will still carry over to RAP. So if you’re already say, 10 years towards forgiveness on the page you weren’t planning, you go over to the RAP. You’ll still have 10 years under your belt towards the forgiveness of the RAP.

Jonathan Hughes: I see. Okay. So when I used to talk about these loans to parents or students. I would say part of why federal loans are attractive and good options, that there’s all these different options that you can get on. It’s a kind of tongue in cheek. Say there’s 11 different options now. There are two going forward.

Betsy Mayotte: For people that borrow on or after 7/1/26 is only two. And for Parent PLUS borrowers that borrow or consolidate after 7/1/26, there’s only one. They didn’t let them on the RAP and I think that’s fraught with [00:21:00] peril. I think I, I think that I, unfortunately, I think that might lead to. Higher default rates with parent plus loans, but the, so parent plus borrowers, whether they have loans today or not, if they borrow or consolidate on or after 7/1/26, they will only have access to that new standard repayment plan, which, if you think about it effectively, even though technically they’re still eligible for a public service loan, forgiveness, it effectively blocks them, a lot of them from PSLF because you really need to be on an income driven plan to benefit from PSLA.

Jonathan Hughes: So I want to just clarify for everybody that these loan repayment options that we’ve been talking about are for federal direct student loans only. Is that right? Okay. So that doesn’t include PLUS, which is parent loan for undergraduate students. Okay. Tell me.

Betsy Mayotte: Parent PLUS are direct loans.

Jonathan Hughes: So are plus loans then eligible for the RAP and the no. No. Okay.

Betsy Mayotte: [00:22:00] No. Parent plus loans, if the pa-, if the borrower takes any, whether they have loans today or not, if they borrow anything on or after July 1st, 2026, they will only be eligible for the new standard repayment plan.

Jonathan Hughes: Okay. Okay. So could a student consolidate their federal direct student loans with Parent Plus and never. Never. Okay.

Betsy Mayotte: Can’t now. Can’t later. Never could, never will be able to.

Jonathan Hughes: Okay. So Parent Plus loans then are not undergraduate Parent plus loans, then. Are not eligible for that public service loan forgiveness options for students.

Betsy Mayotte: It is though.

Jonathan Hughes: Okay.

Betsy Mayotte: So Parent plus loans are under the law eligible for PSLF and people with Parent Plus Loans today can benefit from it because people with Parent Plus Loans today have the [00:23:00] opportunity to get on an income driven repayment plan for themselves. For themselves based on their income and based on their employment.

And technically, the budget reconciliation Bill did not take PSLF away from future Parent Plus loans. However, they made it logistically, practically impossible for them to get it. And I know I’m being repetitive, but no, I don’t. It’s, there’s a, I want to make sure people are clear for Parent Plus for people.

For parent plus borrowers that borrow or consolidate on or after July 1st, 2026, they will not be able to access any income driven plan, including the new RAP and therefore PSLF. Effectively becomes unreachable for them. Yeah. Now for people that have Parent Plus loans today that are pursuing PSLF they, it’s very important that they consolidate before July [00:24:00] 1st, 2026 and get on an income driven repayment plan.

Whether that be income contingent or IBR and doing that will preserve, will lock in their ability to access income-based repayment. For the foresee for forever, as long as they don’t borrow again on or after July 1st, 2026. Now, let me address an issue around that. I’ve already talked to a lot of families where it’s wait a minute, I have Parent Plus loans, but I, my kids still in school.

Or I have other kids that are going to be going to school and I’m going to have to borrow more Parent Plus on or after July 1st, 2026, how do I preserve my existing eligibility for the income driven repayment plans? On my existing loans and still be able to cover future college costs. And the only way to do that is hopefully there’s another parent in the picture and have the other parent do all the borrowing [00:25:00] after July 1st, 2026.

So you don’t contaminate the existing loans that you have.

Jonathan Hughes: Thank you, Betsy. This is complicated but important stuff and we are really lucky that we’re able to bring an expert like you to the folks listening or watching the show. Now, as I said here, there is more to discuss and we’ll bring you part two of Betsy’s interview next time where we’ll be talking about public service loan forgiveness.

And new loan limits dictating how much students and parents can borrow and how that may affect your overall college planning and more big changes. So stay tuned. And folks, if you liked what you heard in the show today and you want to hear more from us on planning, saving, and paying for college and career readiness, please follow the show and you can do that wherever you find your podcast.

And please remember to rate and [00:26:00] review us. It helps us to keep the show going. I’d like to thank Shaun Connolly, our producer. I’d like to thank Lisa Rooney. Lauren Danz, AJ Yee, Christina Davidson and Meredith Clement for their assistance in posting the show. Once again, my name is Jonathan Hughes and this has been The Mefa Podcast. Thanks.