Forgiveness for some but maybe not for others is what President Donald Trump’s student loan forgiveness plan is amounting to, which is sowing uncertainty for borrowers, experts said.

In a big win for borrowers last month, the Department of Education (ED) agreed with the American Federation of Teachers to process student-loan forgiveness applications for borrowers who reached payment thresholds on an income-contingent repayment (ICR) plan or the Pay As You Earn (PAYE) plan as long as the plans remain in effect. Trump plans to phase out the plans by July 1, 2028. Income-based repayment plans also are eligible for forgiveness.

Celebrations quickly faded when less than two weeks later the department issued a rule critics say would curb Public Service Loan Forgiveness (PSLF). The rule, effective July 1, allows ED to exclude forgiveness for those who work at organizations it believes engage in “criminal activity.”

The rule would allow ED to “target sanctuary jurisdictions, as well as nonprofit organizations providing support to immigrant families, gender-affirming care, diversity and equity in the workplace, and protecting the first amendment rights of protesters,” nonprofit consumer advocacy group Protect Borrowers said in a statement.

What is PSLF?

PSLF, created in 2007, cancels a borrower’s remaining federal student debt after ten years of repayment for those who work for a “public service” employer, generally defined as government or a non-profit entity. It’s meant to reward people who work for the “public good,” like firefighters, police, public educators, military, and public health workers.

Why is ED redefining who’s eligible for PSLF?

ED said eligibility standards for what constitutes a qualifying public service employer haven’t been adequately monitored. As a result, certain organizations “engaging in illegal activities that harm their communities and the public good” have qualified, it said in a statement.

“Taxpayer funds should never directly or indirectly subsidize illegal activity,” said Under Secretary of Education Nicholas Kent. PSLF “was meant to support Americans who dedicate their careers to public service – not to subsidize organizations that violate the law, whether by harboring illegal immigrants or performing prohibited medical procedures that attempt to transition children away from their biological sex.”

What will happen to PSLF?

PSLF won’t end, but its rules will likely be settled by the courts after a flurry of lawsuits were filed shortly after the ED announcement.

Twenty-one states and the District of Columbia sued the education department over the new rule restricting eligibility for PSLF.

“Public Service Loan Forgiveness was created as a promise to teachers, nurses, firefighters, and social workers that their service to our communities would be honored,” said New York Attorney General Letitia James in a statement. “Instead, this administration has created a political loyalty test disguised as a regulation.”

A coalition of cities across the U.S, labor unions and nonprofit organizations also filed a lawsuit claiming the same.

How does this affect borrowers?

Stay on course but be flexible, experts said.

Borrowers should focus on keeping their loans in good standing with consistent payments and maintaining documentation and payment history, said Ken Ruggiero, chief executive of lender Ascent.

“At the same time, it’s smart to build flexibility into your long-term plan,” he said. “Federal forgiveness programs can be valuable, but they’re also subject to political and legal changes. Look at PSLF as one possible path, not the only one. If forgiveness comes through, that’s a huge win. But if not, you need to make sure that you’re still on track toward financial independence and not relying solely on government discretion for relief.”

Borrowers should also be prepared to repay more of their loans due to the ED’s other changes to student loans next year, said Kent Smetters, director of The Penn Wharton Budget Model.

Only two repayment plans will be available for loans taken out from July 1: a standard repayment plan that allows borrowers to repay over 10 to 25 years based on their loan amounts regardless of income and a Repayment Assistance Plan (RAP) with monthly payments between 1% and 10% of borrowers’ discretionary income.

As an example of how much more a borrower may end up paying, Smetters said consider an undergraduate borrower with $30,000 in debt with a 6.4% annual interest rate, along with a starting salary of $45,000 salary with a 3% annual wage growth.

  • Under the most generous SAVE plan that protected more income than any other plan, this person would make a monthly payment of $42 in the first year, reaching $116 per month by year 20. Over the 20 years, the average monthly payment would be about $75. Total payments over 20 years would be $17,938. However, the graduate would have a remaining balance of $30,000 in year 20 that would be forgiven. Unlike some debt forgiveness, this option would not be deemed as reportable income under SAVE. Taxpayers are on the hook for the remaining balance.
  • Under RAP, monthly payments start at $169 in year 1 and reach $519 by year 20. The average monthly payment would be $217. Total payments equal $51,964. The entire loan would be paid off by the end of year 16. So, taxpayers are not on the hook for anything.

“Many people who would have gotten a big subsidy under the SAVE plan will no longer get any subsidy going forward,” Smetters said.

How many Americans have student loans?

More than 40 million Americans hold student debt totaling more than $1.6 trillion. Over 9 million borrowers may be eligible for PSLF, according to a 2022 estimate from Protect Borrowers.

Medora Lee is a money, markets and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.

This article originally appeared on USA TODAY: The winners (and losers) in Trump's new student loan plans

Reporting by Medora Lee, USA TODAY / USA TODAY

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