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The Education Department has introduced a new twist in the evolving landscape of student loan repayment, mandating that millions of borrowers transition out of the Biden-era Saving on Valuable Education (SAVE) repayment plan by the end of August. This directive follows the official termination of the SAVE plan in court this month, leaving over 7.5 million borrowers still enrolled due to delays in processing applications for alternative repayment options.
Many borrowers have remained with the SAVE plan, largely because other repayment options often entail higher monthly payments. Additionally, there had been significant uncertainty about when the SAVE program would actually conclude, leaving borrowers hesitant to make a switch prematurely.
Compounding the situation, the Trump administration is poised to further limit repayment choices. By July 1, they aim to close access to several income-driven repayment (IDR) plans. This will narrow the field of available repayment strategies for those with student loans.
In light of these developments, the Education Department announced that starting in July, borrowers who are still part of the SAVE plan will receive a 90-day notice. During this period, they must select a new repayment option; if they fail to do so, they will be automatically placed into a different plan chosen for them.
What is happening to SAVE borrowers?
The Education Department announced Friday that borrowers still in the SAVE plan at the beginning of July will get a 90-day notice to choose a new student loan repayment option or they will be put in one automatically.
Borrowers in the SAVE plan have seen payments paused since July 2024 due to legal challenges. Payments are still in forbearance despite a judge officially terminating the option.
“For years, borrowers have been caught in a confusing cycle of uncertainty, but the Trump Administration’s policy is simple: if you take out a loan, you must pay it back. Borrowers currently enrolled in the illegal SAVE Plan will be given at least 90 days to enter a legal repayment plan of their choice, including the new Repayment Assistance Plan, which will launch on July 1,” Under Secretary of Education Nicholas Kent said.
Despite the lack of payments, borrowers in the SAVE plan saw their interest begin to accrue in August.
SAVE was considered the most generous repayment plan ever created, with some borrowers paying as little as $0 a month on their loans.
Why are some borrowers still in SAVE?
Some borrowers have delayed switching out of the SAVE plan because they can’t afford the cost of other repayment plans at the moment.
“Even though interest is accruing, not having to make a payment and not being in delinquency or default on the SAVE forbearance is a better option for some borrowers right now,” said Natalia Abrams, president of Student Debt Crisis Center.
Even if they could, the Education Department, whose staff has been essentially cut in half by the Trump administration, has struggled to keep up with processing applications for other IDR plans.
In January, court filings showed that 800,000 borrowers were stuck in a backlog for IDR and student debt forgiveness applications.
And advocates worry the backlog in applications could be a sign the department will not be ready with all the changes it needs to make by this summer.
Along with the backlog, the Trump administration created two new student loan repayment programs under the “Big, Beautiful Bill” last year, the Repayment Assistance Plan (RAP) and a Tiered Standard Plan. Both plans are supposed to be ready on July 1.
The Education Department is also implementing new borrowing limits this summer for those looking to take out loans for school. Graduate students will only be allowed to take out $20,500 in federal student loans a year, while those in professional programs, such as to become a doctor or lawyer, max out at $50,000 per year.
To top it off, the department announced a new interagency agreement to have the Treasury Department take over some of the student loan portfolio, starting with those in default, with the ultimate goal for the management of all student loans to go to the Treasury.
“That’s a lot of work for the department,” said Michele Zampini, associate vice president of policy & advocacy at the Institute for College Access & Success.
“To then direct servicers to build those plans out in their systems and get borrowers kind of informed about what those options are and build those into the repayment calculators and things like that. So, there’s a ton that has to happen … I don’t have high hopes that it’s going to go smoothly from the department’s end,” Zampini added.
What are the options going forward?
Advocates were hoping the Education Department would allow SAVE borrowers to stay in the program until 2028, when the changes to the student loan program from the “Big, Beautiful Bill” were all officially in effect.
But the announcement deadline lines up with the implementation of the two new plans created under the Trump administration.
The first is RAP, which bases payments on income and the number of dependents a person has. The second is the Tiered Standard Plan, which will give fixed terms for borrowers to repay with timelines between 10 years and 25 years.
If someone on SAVE does not switch plans, they will automatically be enrolled in the Tiered Standard Plan. RAP and the Tiered Standard Plan will be the only two plans available to individuals who take out loans starting July 1.
“At the end of the day, borrowers aren’t just reacting to a policy change, they’re trying to protect their financial stability and, right now, the hardest part may not be the payment itself, it’s knowing what comes next. And so, it’s just really important to be informed, evaluate your options, talk to someone you trust, reach out to your servicer and make sure that you make the best choice for you both in the short term and the long term,” said Kaydee Ambas, a consumer finance professional and certified financial education instructor at Earnest.