Student Loans: Borrowers See Balances Surge Despite Forbearance Promise

Newsweek

11 hours ago

Based on facts, either observed and verified firsthand by the reporter, or reported and verified from knowledgeable sources.
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Student loan borrowers enrolled in the federal Saving on a Valuable Education (SAVE) plan reported unexpected increases in their loan balances, despite government assurances that no interest would accrue during their forbearance period.
Affected individuals saw debts rise by thousands after receiving notices from the loan servicer Mohela indicating continued interest accrual, CNBC reported Monday.
Newsweek has reached out to the Department of Education (ED) for comment via email on Monday.
Why It Matters
The situation has left borrowers—many of whom had relied on policy assurances of an interest-free reprieve—in financial limbo.
The broader significance lies in the destabilizing effect on household budgets and future repayment plans, with the fate of Biden-era relief policies such as SAVE now uncertain and new federal actions ramping up collections on unpaid loans.
What To Know
The ED and Mohela confirmed their policy that interest should remain at 0 percent for borrowers under SAVE administrative forbearance, contradicting communications sent to some borrowers.
"If you recently received an interest notice for your student loan account, please know that this is not a bill, and no action is necessary at this time," Mohela wrote in a notice at the top of its website.
The resulting confusion arrived amid ongoing legal battles and staff cutbacks at the ED, complicating responses for those seeking help over their swelling balances.
"The Biden Administration put a forbearance in place, promising that borrowers enrolled in the SAVE plan wouldn't accrue interest during the forbearance period. But some are now seeing their balances go up—despite that promise," Kevin Thompson, the CEO of 9i Capital Group and the host of the 9innings podcast, told Newsweek.
On Monday, CNBC reported that Mohela, a federal loan servicer, sent borrowers enrolled in the SAVE plan letters warning, "interest continues to accrue on your loan(s) during the forbearance period."
Ellie Bruecker, director of research at The Institute for College Access & Success, told CNBC her student loan balance grew by approximately $3,000 during a year-long reprieve that was supposed to be interest-free.
"I saw those numbers and my eyes bugged out of my head," the 34-year-old told CNBC, adding, "With the level of dysfunction at the Education Department right now, I have a real distrust this is going to get resolved for people.
Other student loan borrowers also got the same message from Mohela and have gone on social media platforms like Reddit seeking answers, CNBC reported.
An ED spokesperson reiterated that the SAVE Plan's forbearance does not accrue interest, a statement supported by Mohela's own website, which sets the interest rate for these borrowers at 0 percent.
Nonetheless, servicing backlogs and miscommunications left many borrowers uncertain of their true balances—and with limited recourse.
"If you're one of these students, you need to reach out to your loan provider immediately," Alex Beene, a financial literacy instructor for the University of Tennessee at Martin, told Newsweek. "However, in terms of the overall student loan situation, more clarity is needed from both the government and the providers."
These complications followed legal challenges that halted the SAVE program in July 2024 after lawsuits brought by Republican-led states. As a result, approximately 8 million borrowers have remained in an administrative forbearance that was intended to be interest-free.
The ED faced a severe backlog, with more than 1.98 million income-driven repayment applications pending at the end of April. At current rates, it could take over two years to process the backlog, potentially forcing millions to default or miss repayment opportunities.
The Trump administration's moves to limit repayment options and resume collections on defaulted loans have deepened borrower uncertainty.
A sign is displayed outside of the Lyndon Baines Johnson Department of Education building on May 18 in Washington, D.C.
A sign is displayed outside of the Lyndon Baines Johnson Department of Education building on May 18 in Washington, D.C.What People Are Saying
Kevin Thompson, the CEO of 9i Capital Group and the host of the 9innings podcast, told Newsweek: "The Department of Education has been anything but stable. With talk of restructuring or even eliminating the department altogether, morale is low, staff have been cut, and there's a massive backlog of applications. Borrowers are falling through the cracks, plain and simple."
Alex Beene, a financial literacy instructor for the University of Tennessee at Martin, told Newsweek: "It's yet another sign of real complications in the current student loan system in terms of clarity and consistency. Many borrowers were pleased with the new options meant to lower their payments during the Biden administration. However, with starts and pauses due to legal action, and now a new administration making sweeping changes, many of these same borrowers are growing frustrated, especially when a select few are seeing interest accrue on loans after being promised the plan they were enrolled in would not do so."
What Happens Next?
Borrowers in the SAVE plan forbearance are expected to remain in limbo until court proceedings resolve the program's future or until the ED updates its policies and systems.
In the meantime, affected borrowers have been advised to closely monitor account statements and report discrepancies to their loan servicers.
"The burden is falling squarely on the borrowers. This administration isn't interested in what the last one promised—and they may not honor prior forbearance terms," Thompson said. "Bottom line: These loans are expected to be paid back. No wiggle room. Whether your loan came from a predatory, unaccredited school or a legitimate institution, the message is the same—debt is debt—and the government intends to collect."