Interest will start accruing again on Aug. 1 for student loan borrowers on the SAVE plan

CNBC

6 days ago

Roughly 8 million federal student loan borrowers will soon see their debt balances start growing again.
Borrowers who enrolled in the Saving on a Valuable Education income-driven repayment plan introduced by former President Joe Biden have been in an interest-free forbearance for about a year. But interest will resume accruing on those loans on Aug. 1, the Department of Education announced on July 9.
The move is to comply with a federal court injunction and help bring "fiscal responsibility to the federal student loan portfolio," the department said in its statement.
Here's what borrowers need to know.
In July 2024, federal judges in two district courts ruled the SAVE plan could not go into effect while they weighed two multistate lawsuits against the Biden administration. The suits allege that Biden didn't have the authority to enact the plan.
As a result, borrowers enrolled in the plan were placed in an administrative forbearance, during which no monthly payments were due and no interest accrued while the legal battles played out.
In February 2025, a federal appeals court sided with the GOP-led lawsuits and continued the stay on the plan's rollout, although a final ruling on whether the plan can go into effect is still pending. However, President Donald Trump's recently passed spending bill eliminates the SAVE plan by July 2028.
"The Department urges all borrowers in the SAVE Plan to quickly transition to a legally compliant repayment plan — such as the Income-Based Repayment Plan," Secretary of Education Linda McMahon said in the July 9 statement. "Borrowers in SAVE cannot access important loan benefits and cannot make progress toward loan discharge programs authorized by Congress."
For now, borrowers on the SAVE plan have been moved into a general forbearance and won't have required monthly payments. But their balances will come due, along with all accrued interest, when "the legal situation changes or servicers are able to send bills to borrowers at the appropriate monthly amount," according to Federal Student Aid.
A typical borrower could see an extra $300 in interest added to their debt each month with the end of the interest forbearance, an analysis by the Student Borrower Protection Center found. Borrowers can make voluntary interest-only payments without leaving the forbearance, if they're able and want to stay on top of ballooning balances.
Additionally, time spent in the general forbearance will not count toward Public Service Loan Forgiveness or income-driven repayment forgiveness payment counts.
Some borrowers who apply for other income-driven repayment plans may be placed in a processing forbearance while their loan servicer reviews their application. Interest still accrues, but time in this kind of forbearance will go toward forgiveness payment counts.
Processing forbearances are not to last more than 60 days. After 60 days if the servicer is still processing the IDR application, the borrower may be placed into a general forbearance as described above.
The Department of Education is encouraging borrowers enrolled in the SAVE plan to apply for a different "legal" repayment plan. The application for the income-based repayment, Pay As You Earn and income-contingent repayment plans has been available since March 26, 2025, according to FSA.
It may take some time to actually enroll in a one of these IDR plans, though. There is a backlog of IDR applications the Department of Education says it is working through, but some borrowers report waiting nearly a year to enroll, according to the Student Borrower Protection Center. Once you submit an IDR application, contact your loan servicer immediately to ensure you are placed in the processing forbearance, Aissa Canchola Bañez, policy director at SBPC, says.
Borrowers should also be aware they will not be able to remain in the ICR or PAYE plans after July 1, 2028, as Trump's spending bill also sunsets those repayment plans. Borrowers who don't select another plan by July 2028 will be automatically moved into the forthcoming Repayment Assistance Plan.
The Department of Education encourages borrowers to enroll in the IBR plan until RAP becomes available, by July 1, 2026, it said in a statement.