Millions of students face interest restart as court blocks SAVE loan plan

Daily Mail​

5 days ago

The student loan balances for roughly eight million Americans are about to balloon now that the Department of Education plans to restart interest charges by August 1. This action affects the 7.7 million borrowers who are enrolled in the Biden-era Saving on a Valuable Education (SAVE) Plan , a program that shrunk payments to $0 a month for people under a certain income threshold. The interest charges for SAVE borrowers will kick in at the start of next month, though they won't have to resume making payments.
The Education Department said the primary reason it restarted interest was because it sought to comply with a federal court injunction from July 2024 that blocked the full implementation of the SAVE plan . The injunction from the Eighth Circuit Court of Appeals is what placed borrowers in an indefinite period of forbearance, which postpones their payments.
That was done so the federal government could figure out how to transition millions of people out of the program , later ruled to be illegal by the same court in February 2024. 'For years, the Biden Administration used so-called "loan forgiveness" promises to win votes, but federal courts repeatedly ruled that those actions were unlawful,' Education Secretary Linda McMahon said in a statement. 'Since day one of the Trump Administration, we've focused on strengthening the student loan portfolio and simplifying repayment to better serve borrowers,' she added.
Guidance from the Education Department in January estimated that SAVE plan enrollees won't have to actually start paying servicers until December 2025. Mike Pierce, the executive director of the Student Borrower Protection Center, called the policy pivot by the Trump administration a 'betrayal' and attacked 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 told ABC News in a statement. The Student Borrower Protection Center's mission is to reduce the federal student debt burden on Americans, which has swelled to over $1.6 trillion. Student debt is more difficult to get rid of than other types of debt, as it cannot be discharged in bankruptcy.
More than a decade before championing student loan forgiveness as president, Joe Biden as a senator voted for a 2005 law that made it even harder for Americans to wipe out their education loans through the bankruptcy process. Pierce said the Trump administration's latest move, though framed as a way to end the debt crisis, will only exacerbate the problem. '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,' he said. '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,' Pierce added.
The SAVE plan that is now being wound down was introduced by Biden in August 2023 after the Supreme Court ruled that his prior student loan forgiveness plan was unconstitutional. That program would have canceled $20,000 in loans for Pell Grant recipients and $10,000 for non Pell-Grant recipients. Forgiveness also would have only been reserved for people making less than $125,000 per year. The SAVE plan still aimed to cancel debt, though enrolled borrowers were required to make consistent payments for a maximum of 25 years to get their loan slate wiped clean, regardless of the amount borrowed.
The interest restart for SAVE borrowers comes less than a week after President Donald Trump signed the Big Beautiful Bill into law. That law, Trump's signature domestic policy agenda for his second term, includes a provision that radically reduces the number of student loan repayment plans borrowers can use. Before the law's passage, there were about 12 different programs to choose from.
Now there are just two: a standard repayment plan and a new income-driven repayment plan called Repayment Assistance Plan (RAP). Under RAP, borrowers' monthly payments will be set as a share of their income. For instance, if someone makes between $10,000 and $20,000, they would be obligated to pay 1 percent of that toward their loans. At the higher end of the scale people with incomes of $100,000 or more would have to pay 10 percent. In May, economist Jason Delisle, a nonresident senior fellow at the Urban Institute, put together his best estimate of what a single-person household would end up paying every month. Delisle compared the Big Beautiful Bill's approach to the income-based repayment plan passed under former President Barack Obama. People making $30,000 all the way up to $70,000 would actually pay less each month under the GOP plan, according to Delisle. The only groups who would have to pay more are those bring in no income, those who make $20,000 a year and people who earn upwards of $100,000.
The standard repayment plan under the Big Beautiful Bill does not take income into account, rather it sets fixed monthly payments based on the size of the loan balance. Larger balances are also given longer time periods to pay off. For example, a collection of federal student loans worth less than $25,000 can be paid off in 10 years, while a loans exceeding $100,000 can be paid over a period of 25 years, according to the text of the law. Students who took out loans before July 1, 2026, will still have access to the myriad of repayment plans. The new changes Republicans passed will only affect people who take out loans after that date.