Millions of student loan borrowers will soon have interest restarted
The U.S. Department of Education announced that student loan borrowers on the Saving on a Valuable Education (SAVE) plan will have their interest accrual restart on August 1. Outreach on the changes began Thursday, July 10, for the 7.7 million borrowers on the Biden-era plan.
SAVE plan
Former President Joe Biden launched the SAVE plan in August 2023 as an income-driven repayment plan. It calculates payments based on the borrower’s income and family size, and forgives the remaining balance after a certain number of years.
A federal court issued an injunction in the spring of 2024, preventing the Department of Education from fully implementing the plan. Then, another court blocked the SAVE plan entirely in July 2024, which led to borrowers being placed in an interest-free forbearance, where they will remain until August 1.
“For years, the Biden Administration used so-called ‘loan forgiveness’ promises to win votes, but federal courts repeatedly ruled that those actions were unlawful. 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,” U.S. Secretary of Education Linda McMahon said in a statement.
The department says borrowers on the SAVE plan will need to start making monthly payments immediately, which will include any accrued interest.
They’re directing borrowers to this website to help them calculate their monthly payments.
Student loan repayment changes
This is one of many new changes coming to student loan repayments in America. The president’s budget bill, which he signed on July 4, makes sweeping changes to how repayments will work and options available to students.
The new law will provide fewer options for repaying loans by eliminating current programs, such as the SAVE plan, the Pay As You Earn (PAYE) plan and the Income-Contingent Repayment (ICR) plan.
Instead, borrowers will soon have two options for repaying their loans.
The first option is called the Repayment Assistance Plan. Under that plan, repayments would be set at 1%-10% of borrowers’ income with a minimum monthly payment of $10.
Unpaid interest will be waived under the plan, with any remaining balance forgiven after 30 years. Under the SAVE plan, borrowers would have received loan forgiveness after ten years.
The second option is a standard repayment plan, which sets fixed payments for 10 to 25 years and is based on the borrower’s original loan balance.
The bill also eliminates most protections for borrowers facing financial hardships, including deferments.
Student loan crisis
Approximately 16% of Americans, or over 40 million people, have student loan debt, according to a new report from Best Colleges. According to the report, the SAVE plan has the largest number of borrowers. Recent data shows that those 40 million people have a combined $1.8 trillion in student loan debt. The average balance is just over $38,000, and 5% of borrowers were in default as of the end of 2024.
Ella Rae Greene, Editor In Chief
