Education Department tells 7.5 million student loan borrowers in “illegal” SAVE plan to prepare for repayment

The Education Department announced that more than 7 million student loan borrowers enrolled in the Biden-era SAVE plan will receive notices to seek a new repayment plan. The SAVE plan, which was recently deemed illegal by a federal court, has kept borrowers in forbearance since July 2024. Starting July 1, loan servicers will issue notices giving borrowers 90 days to select a new repayment plan, which will result in higher monthly payments for most borrowers.

The Education Department criticized the SAVE plan for its false promise of student loan forgiveness and artificially low monthly payments. Under Secretary of Education Nicholas Kent emphasized the Trump Administration’s policy that borrowers must repay their loans. Borrowers like Alexis Arredondo, who graduated with student debt and enrolled in the SAVE plan, now face the dilemma of choosing between higher monthly payments or a longer repayment period with increased interest.

The SAVE plan was part of former President Joe Biden’s efforts to reduce student debt, offering lenient terms such as reduced loan payments based on discretionary income and forgiveness after 10 years of payments for borrowers who borrowed $12,000 or less. However, court challenges led to the plan being blocked, causing borrowers to accrue interest on their debt balances.

Mike Pierce, executive director of the Student Borrower Protection Center, highlighted the uncertainty and challenges faced by borrowers as they navigate the changing repayment options. The Education Department introduced a new income-driven repayment plan called the Repayment Assistance Plan, which will be available starting July 1. This plan ties monthly payments to income and family size, with fixed terms between 10 and 25 years.

Changes to student loan repayment options made by the Trump administration and Congress will eliminate deferment for new student loans due to unemployment or economic hardship. Advocates like Alexander Lundrigan from Young Invincibles expressed concerns about the affordability of repayment plans amidst the current crisis. The U.S. Court of Appeals for the 8th Circuit recently struck down the SAVE plan, prompting the Education Department to direct borrowers to enroll in a new plan and resume payments.

Borrowers will receive notices from their loan servicers in stages, with those enrolled in the SAVE plan the longest being the first to be contacted. The transition to new repayment plans aims to provide clarity and a path forward for student loan borrowers facing uncertainty.