How will Trump’s new spending bill affect student loans?
President Donald Trump's newly passed spending bill will overhaul the federal student loan system.
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On August night in Texas, Pablo Pratt let his 1-year-old son sleep and sit down with his wife, trying to get the numbers normal. Their rent should be due, daycare fees pile up, and now, after changing the popular repayment options, the $582 student loan interest quietly reaches his account.
Pratt, 28, is one of millions of people in the Biden Administration’s Invaluable Education Program (SAVE) program that collected interest for the first time in a year. His family is already paying for the salary when surprise interest tax adds extra stress.
“We’re almost just in the coastal areas,” Pratt said. “It spirals and then one thing leads to another, you can go from good stuff to really bad stuff, really fast.”
Pratt made up for additional payments with $130,000 in student loan debt. He sifted their garage and listed old coffee makers and Xbox on Facebook Marketplace. His wife hopes to get an additional babysitter transformation. In the end, that wasn't enough, they received a loan from Pratt's parents.
Z Gen is a group of people born between 1997 and 2012, driving a rapidly changing student loan environment. Under the Trump administration, the removal of popular repayment options and changes to federal aid are undermining financial futures for some young people, in other cases, completely detaching them from higher education. Young people who feel the impact show that they apply panic to work, experience anxiety and extreme situations, discuss movements leaving the country.
Student loan changes under the Trump administration
Mike Pierce, executive director of the Student Borrower Protection Center (SBPC), a debt-centric advocacy group, said 2025 saw the biggest changes in the student loan system in two decades.
After nearly five years of rest during the pandemic, student loan borrowers will lag behind financial consequences if payments are lagging behind. Although federal student loan payments were suspended in September 2023, payments that were 90 days late did not begin to be reported to the credit bureau until fall 2024. Borrower crimes began to appear in credit reports in 2025, resulting in a sudden drop in credit scores.
In addition, nearly 8 million borrowers began collecting interest on their loans on August 1 since former President Joe Biden placed the group in tolerance in July 2024, a move that suspended monthly payments and accrued interest.
“There are no simple answers for people who are in debt right now,” Pierce said. “A lot of people will get bills that they can’t afford and they will have to make very difficult choices between damaging credibility and making a living.”
SBPC's July analysis shows that minimum payments for minimum payments in a savings plan are still tolerant, but for typical borrowers of the plan, the recovery interest fee alone could cost about $300 per month. The annual interest cost is over $3,500.
Tyler Lobos, 22, knows taking out a student loan is an option, but as a 17-year-old, it doesn't look like one. He felt that a college degree would be very helpful when it was necessary to enter the workforce, and the loan was related to the territory – in his case, $80,000 of it.
But when he checked his student loan portal a few days after he graduated from Bloomsburg, Pennsylvania in May, he had a feeling of sinking when he saw the loan staring back at him.
“The only thing that comes to mind is student loans,” Lobos said. “As a 17-year-old, for the first time going to college…you don't understand the gravity of that.”
Lobos said he felt anxious almost every time he bought it.
“It will absolutely devour you,” Lobos said. “It feels like a ball and a chain…I'm definitely locked by these things.”
“People are being pushed to the wall now”
Lobos plans to pay off the loan using the “Save Program” but it has blocked its enforcement due to a federal court injunction on February 18, 2025.
“It was great before I was a senior in college and seeing that saving plan was an option,” Lobos said. “Now that’s not, it certainly adds stress levels; it adds a lot on the borrower’s shoulders.”
When Pratt discovered the changes he wanted to save, he put pressure on hundreds of jobs trying to find a high-paying salary. He and his wife talked about moving to a country where living costs are cheaper, like Bolivia, where grandparents live.
Pratt holds a bachelor’s degree in International Relations and Global Studies and a master’s degree in Information Security and Privacy from the University of Texas Austin, but cannot find a job in any field he studies.
“People are being pushed to the wall now,” Pratt said. “It's very expensive [to live]but the degree is reaching the point where they are worthless.
Looking ahead, borrowers will fight Trump’s big bills after July 1, 2026. The legislation would limit repayment options for graduate students and cap lending restrictions, including the elimination of graduate student plus loans, forcing more students to apply for private loans or reconsider their educational options. Current borrowers will also see their repayment options drop in 2028.
“This is the biggest change in student aid policies I’ve seen,” said Megan Walter, senior policy analyst with the National Association of Student Financial Aid Administrators. “Many of our concerns are the speed at which they try to implement this…it’s hard to explain to students.”
Generation Z is becoming increasingly anxious about their financial situation
Financial therapist Lindsay Bryan-Podvin said some young people are interested in withdrawing from higher education and related student loan debt through manual labor, highlighted by recent virus Tiktok videos of the recent Tiktok videos of side obstacles in young employees. She noted that Gen Z spent most of her time watching her family spend the 2008 recession and then graduated or went through developmental years during the pandemic.
“Gen Z is starting a financial life with more debt, less social safety nets and higher costs. Millennials are told a version, “just get a degree,” Gen Z is not giving the same information.”
The cost of living is often considered the biggest financial concern for young people. Nearly one-third of Z and millennials are worried that their finances could lead to their experience homelessness, and their experiences are almost three times as likely as older respondents, according to a 2024 survey conducted by Acorns and Opinium Research.
With young Americans changing their financing for student debt, Walter said new borrowers should take a holistic approach.
“You should look at four years, figure out how much you need in four years, and then go back,” Walter said.
Regarding borrowers’ second or third year of college worrying about crossing the finish line, Pierce recommends talking to the Office of Financial Aid to get a grant or a cheaper loan to fill the gap.
Walter expects more students to choose more cost-effective educational paths, such as starting with a biennial community college associate degree and then moving to a four-year college, or attending a school closer to home to reduce housing costs.
“I don't know where the bubble broke out. Like, when is the student saying 'It's unbearable' and people just stop moving forward?” Walter said.
Kathryn Palmer contributed to the report.
Rachel Hale’s partnership with key and news partners, supports the role of U.S. Youth Mental Health. Funders do not provide editorial input. Contact her at [email protected] @Rachelleighhale On X.