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Student Loans Can Now Access Key Repayment Plan After Education Department Announces Fix
ByAdam S. Minsky,Senior Contributor. Adam Minsky is an attorney and writer focusing on student loans.
Dec 23, 2025 at 11:56am EST
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The Education Department on Monday officially implemented a long-delayed expansion of the Income-Based Repayment plan, paving the way for student loan borrowers with higher earnings to access the critical repayment plan. Those with federal student loans who had applied for IBR and were previously denied because of their higher income can now reapply.
IBR is an income-driven repayment that offers borrowers monthly payments tied to their income and a pathway to student loan forgiveness after 20 or 25 years, depending on when they first took out their student loans. IBR is one of four income-driven plan options currently available to borrowers, but it’s the only one that will remain after the other three are phased out under the One Big, Beautiful Bill Act (or “OBBBA”) enacted this summer. The Education Department will sunset the Income-Contingent Repayment plan and Pay As You Earn (ICR and PAYE, respectively) in 2028, while SAVE will likely be eliminated within the next few months following a recent settlement agreement the department announced earlier this month. Borrowers with student loans currently enrolled in SAVE, ICR, or PAYE can switch to IBR, or later next year they can access a new option called the Repayment Assistance Plan, or RAP.
But some borrowers haven’t been able to enroll in IBR because of what’s known as the “partial financial hardship” rule. This rule blocks access to IBR for borrowers whose incomes are too high relative to their student loan balances. The OBBBA eliminated the partial financial hardship requirement to facilitate transitioning to the IBR plan. But, the Education Department took months to implement the change, resulting in rejected applications and a legal challenge. This week, the department announced it has finally updated its systems to eliminate IBR’s partial financial hardship rule to comply with the OBBBA. Here’s what this means for student loan borrowers.
The partial financial hardship rule was intended to allow only borrowers with a financial hardship to be able to access the IBR plan. The rule requires a borrower’s calculated monthly income-based payment to be less than what would otherwise be needed to pay off their student loans in full over a 10-year Standard repayment term. If their income is too high, they cannot enroll in the program.
“Before OBBBA, only borrowers with partial financial hardship were eligible to enroll in the IBR Plan,” explains the Education Department in online guidance. “When determining whether a borrower has partial financial hardship, we use a formula, based on income and family size, to determine what that borrower’s monthly payment amount will be. If the calculated amount is less than what the borrower’s monthly payment amount would be under the 10-year Standard Plan, then that borrower is considered to have partial financial hardship. If the calculated monthly payment amount is greater than the 10-year Standard Plan amount, then the borrower is considered not to have partial financial hardship.”
The OBBBA changed the rules for IBR to eliminate the partial financial hardship requirement. This was done so that borrowers who were losing access to the other three income-driven plans (SAVE, ICR, and PAYE) would be able to continue making progress toward eventual student loan forgiveness by switching to the IBR plan, even if their income is now relatively high.
But the Education Department was unable to quickly implement the change to the IBR rules following passage of the OBBBA. As a result, borrowers with student loans that should be eligible for IBR were rejected because their income was too high. This triggered the American Federation of Teachers to expand an existing legal challenge to include allegations that the department was violating the provisions of the OBBBA by denying student loan borrower applicants access to the IBR plan.
“The One Big Beautiful Bill Act upon enactment ended any requirement that borrowers have to demonstrate a partial financial hardship to access Income Based Repayment,” said the AFT in a motion for a preliminary injunction filed in September. The AFT then cited specific examples of federal student loan borrowers who were denied access to IBR due to not having a partial financial hardship.
The Education Department entered into an interim settlement agreement with the AFT in October. As part of that agreement, the department reaffirmed its obligation to eliminate the partial financial hardship requirement for IBR, and agreed that IBR applications from borrowers with qualifying student loans who should otherwise be eligible for the program would be held in abeyance until the department’s systems were updated to reflect the removal of the partial financial hardship requirement.
“The defendants shall not deny as ineligible any borrower applying for the IBR plan on the ground that the borrower lacks a ‘partial financial hardship,’ as previously defined by Section 493C(a)(3) of the Higher Education Act of 1965, 20 U.S.C. § 1098e(a)(3) (2024),” reads the court-approved agreement. “The defendants shall hold such borrowers’ applications in abeyance until the defendants update their systems to allow for proper processing of these applications.”
On Monday, the department formally announced that it has completed the updates to its systems. As a result, there no longer is a partial financial hardship requirement for student loan borrowers applying for the IBR plan.
“Prior to OBBBA, borrowers were required to have partial financial hardship in order to be eligible to enroll in the IBR Plan,” said the department in updated online guidance on Monday. “OBBBA removes that requirement. On Dec. 22, 2025, we updated our systems to implement this update.”
What Borrowers With Student Loans Eligible For IBR Should Know
Borrowers with federal student loans in the ICR, PAYE, or SAVE plans who are looking to switch to the IBR plan should now be able to do so, regardless of their income level. Those who have recently applied for IBR, and whose applications have not yet been processed, may not need to take any action. Federal student loan borrowers who applied earlier this year and were denied due to not having a partial financial hardship may need to reapply.
“We encourage borrowers who previously applied for the IBR Plan and were denied due to their lack of partial financial hardship to reapply using the online IDR application, now that these updates have been implemented,” said the Education Department in its online guidance. “If you applied for IBR and your servicer is holding your application, your servicer will process your application in the order in which it was received.”
The Education Department is contending with significant backlogs and processing delays associated with IDR applications. And these delays are likely to get worse in the coming months as millions of borrowers with student loans in the SAVE plan take steps to transition to other repayment programs (particularly the IBR plan) so that they can continue to have payments tied to their income and a pathway to eventual student loan forgiveness. The department indicates that borrowers who apply online at StudentAid.gov and use the embedded IRS data retrieval tool to import their income information from their most recently-filed federal tax return may experience faster processing.