Student loan interest charges to kick back in for roughly 8 million borrowers
Borrowers on the Biden-era Saving on a Valuable Education Plan -- about 7.7 million people -- will have interest charges return on Aug. 1 after a yearlong pause on payments. The return to interest charges was first reported by Bloomberg.
MORE: 2 million student loan borrowers at risk of garnished wages in July
"For years, the Biden Administration used so-called 'loan forgiveness' promises to win votes, but federal courts repeatedly ruled that those actions were unlawful," Secretary of Education Linda McMahon wrote in a statement released by the department Wednesday. "Since day one of the Trump Administration, we've focused on strengthening the student loan portfolio and simplifying repayment to better serve borrowers."
The education department said it's complying with a federal court injunction that blocked implementation of the SAVE Plan earlier this year. But education advocates told ABC News that this move is expected to severely impact those millions of borrowers on SAVE who could potentially enter into more debt as interest accrues in the coming weeks.
Student Borrower Protection Center Executive Director Mike Pierce called the move by the Trump administration a "betrayal" and blasted Secretary of Education Linda McMahon.
"Instead of fixing the broken student loan system, Secretary McMahon is choosing to drown millions of people in unnecessary interest charges and blaming unrelated court cases for her own mismanagement," Pierce wrote in a statement to ABC News.
SBPC, which focuses on eliminating the burden of debt for Americans, estimates borrowers will pay $3,500 in interest a year on average, which amounts to $27 billion in total, according to an analysis obtained by ABC News.
"Every day we hear from borrowers waiting on hold with their servicer for hours, begging the government to let them out of this forbearance and help them get back on track -- instead McMahon is choosing to jack up the cost of their student debt without giving them a way out. These are teachers, nurses and retail workers who trusted the government's word, only to get sucker-punched by bills that will now cost them hundreds more every month. McMahon is turning a lifeline into a trap, and fueling one of the biggest wealth grabs from working families in modern history," Pierce said.
The Trump administration said it will support borrowers in selecting a "new, legal repayment plan" that best fits their needs and will begin direct outreach to borrowers enrolled in the SAVE Plan, with "instructions on how to move to a legal repayment plan," the release said.
For now, SAVE borrowers are still on a forbearance period, which postpones their payments. The SAVE Plan, dubbed the most affordable payment plan ever by the Biden administration, started after the Supreme Court struck down then-President Biden's Student Loan Forgiveness plan in 2023.
SAVE is an Income Driven Repayment (IDR) program aimed at easing the return to repayment for millions of Americans that calculates payment size based on income and family size.
MORE: Collections on defaulted student loans may affect millions of people's credit scores
The interest restart comes as President Donald Trump recently signed into law his signature domestic policy agenda, which included a provision to terminate all current student loan repayment plans -- such as SAVE and other IDRs -- for loans disbursed on or after July 1, 2026. They will be replaced with two separate repayment plans: a standard repayment plan and a new income-based repayment plan called the Repayment Assistance Plan, according to the text of the megabill. The repayment plans are affected by legal challenges as well, according to the Department of Education release.
The department is urging SAVE borrowers to consider enrolling in the income-based repayment plan authorized under the Higher Education Act until it can launch the Repayment Assistance Plan.
MORE: Trump signs controversial spending bill during White House 4th of July celebrations
In May, some 5 million Americans with defaulted student loan payments -- which means they hadn't paid their debts for around nine months or 270 days -- had their loans sent for collections for the first time since student loan payments were paused due to the onset of the COVID-19 pandemic.
Earlier this year, McMahon said she has worked to simplify the "overly complex" repayment process and said taxpayers will no longer be responsible for the "irresponsible student loan policies" of the previous administration.
"The Biden Administration misled borrowers: the executive branch does not have the constitutional authority to wipe debt away, nor do the loan balances simply disappear," McMahon wrote in a department release this spring.
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