The Government Is Changing the SAVE Plan and It’s Bad News for Borrowers
Millions of student loan borrowers who thought they had a break from interest have now seen their balances grow again. Interest has returned for those enrolled in the Saving on a Valuable Education (SAVE) Plan. The story behind this change involves court rulings, political battles, and new repayment plans that could reshape how borrowers handle their debt.
Here’s what happened and what it means for you.
Why Interest Came Back
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The SAVE Plan was rolled out under the Biden administration as a way to make monthly payments more affordable and prevent balances from accumulating interest. However, federal courts blocked key parts of the plan by ruling that the Department of Education didn’t have the authority to keep borrowers at a zero percent interest rate indefinitely. That meant interest was only paused temporarily.
As of August 1, 2025, the Department of Education began charging interest again to comply with a court injunction. This decision affected nearly 7.7 million borrowers who had been in forbearance since the summer of 2024.
While payments are still paused, balances have begun to grow as interest accrues. Importantly, this change was not applied retroactively, so interest wasn’t added for months that had already passed.
How Much Extra Borrowers Are Paying
For many, the numbers sting. The Student Borrower Protection Center estimated that the return of interest would result in an additional $27 billion in combined interest over the course of a year.
On an individual level, the average borrower is now facing around $3,500 more in interest annually, or roughly $300 each month. That’s on top of their principal balance, which means loans have become harder to pay off if no action is taken.
Although borrowers don’t need to make payments during forbearance, the Education Department has said that people can make interest-only payments if they want to slow the growth of their balances. For those financially able to do so, this can help prevent “sticker shock” as full payments move closer to restarting.
What Happened to Loan Forgiveness
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One of the trickiest parts of this situation is how it has affected forgiveness programs. Months spent in forbearance under SAVE have not counted toward forgiveness through Public Service Loan Forgiveness (PSLF) or income-driven repayment forgiveness, unless borrowers switched to a legal repayment plan like Income-Based Repayment (IBR).
Some PSLF borrowers have been able to “buy back” months of payment history to help them reach forgiveness faster. However, that required switching out of SAVE, since forgiveness credits under SAVE and PAYE are suspended by court orders, while ICR forgiveness isn’t blocked but has been temporarily delayed by system updates.
At present, IBR is one of the few remaining plans where forgiveness is still processed, although updates to government systems have temporarily delayed those benefits.
Parent PLUS borrowers can preserve PSLF eligibility by consolidating into a Direct Consolidation Loan and enrolling in ICR. In the past, some used a ‘double consolidation’ workaround to access other repayment plans, but recent rule changes have limited that strategy. It is not required for PSLF.
What Borrowers Have Been Told to Do
The Trump administration encouraged borrowers to move into a legally compliant repayment plan. Applications for IBR, PAYE, and ICR were already in the system, meaning borrowers who previously applied don’t need to resubmit. However, there was a backlog of about 1.5 million income-driven repayment applications, so switching plans might take time before the change appears in accounts.
Borrowers have been urged to use the Department of Education’s Loan Simulator tool. It enables the comparison of monthly payments under different plans and estimation of how long it will take before any remaining balance is forgiven. For those working toward PSLF or other discharge programs, switching out of SAVE has been the only way to get credit for payments again.
What’s Next in Student Loan Repayment
The repayment system itself is changing. Under the One Big Beautiful Bill Act, signed in July 2025, a new Repayment Assistance Plan (RAP) will launch by July 1, 2026. RAP bases payments on a percentage of income, with forgiveness after 30 years of repayment. PAYE and ICR are expected to be phased out over time, which will leave borrowers with fewer but more streamlined options.
For now, the focus is on the SAVE Plan’s millions of borrowers who have already seen interest climb again. It’s a frustrating shift, especially after promises of relief, but understanding the new rules can help borrowers prepare. Keeping an eye on available options, staying updated on Department of Education guidance, and deciding whether to switch plans sooner rather than later could make a massive difference in how much they end up paying over time.