Trump ends student loan subsidy for 7.7 million people who will soon see bills increase
On August 1, the Department of Education will resume interest on SAVE payments, giving enrollees just weeks to figure out a personal financial plan after spending the last year relieved from making interest-free payments while litigation played out.
Borrowers can continue to defer payments but now those loans will accrue interest until forbearance ends. The education department previously said the temporary postponement would end in 'Fall 2025' but the date remains unclear due to pending legal challenges.
SAVE, an income-based repayment plan, was a staple of former president Joe Biden's agenda that did not require student loan borrowers to pay interest, so long as the borrower's monthly payment was less than the amount of interest that accrued on the loan each month.
While the plan was popular with borrowers, it was railed against by Republicans because the government would be responsible for paying the remaining interest, so an individual would not see their loan grow.
Now, a typical borrower could see their payments increase by $300 per month or $3,500 per year due to the new interest policy, the Student Borrower Protection Center, a nonprofit that advocates for eliminating student debt, estimated.
The organization said as a result, 'the Trump administration will pass on more than $27 billion in unnecessary costs to working families with student debt in the next 12 months alone.'
In a statement, Secretary of Education Linda McMahon said resuming payments with interest was necessary to bring fiscal responsibility to the federal student loan portfolio.
'For years, the Biden Administration used so-called 'loan forgiveness' promises to win votes, but federal courts repeatedly ruled that those actions were unlawful,' McMahon said.
'Congress designed these programs to ensure that borrowers repay their loans, yet the Biden Administration tried to illegally force taxpayers to foot the bill instead,' she added.
Last year, two Republican-led states challenged the SAVE plan in federal court, arguing that not only would it increase government debt, but that Biden overstepped his authority while developing the plan. For the last year, the plan has been in limbo.
While courts have been determining the legality of the plan, none have directed the Education Department to resume charging interest. It's unclear why the department has chosen to do so now.
When contacted for comment by The Independent, the department referred back to their announcement.
'The Department will take this action to comply with a federal court injunction that has blocked implementation of the SAVE Plan, including the Department's action to put SAVE borrowers in a zero percent interest rate status,' the department said.
'Outside of that regulatory provision in SAVE (which is enjoined), the Department lacks the authority to put borrowers into a zero percent interest rate status,' it added.
The Education Department's announcement arrives days after President Donald Trump signed his 'One Big Beautiful Bill' into law, which gets rid of the SAVE plan for new borrowers and gives current borrowers until July 2028 to exit the program.
Beginning Thursday, the Education Department will send notices to borrowers enrolled in the program, giving them several options to switch to other income-based repayment plans or use an online loan calculator tool to estimate monthly payments and determine their next steps.
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