Education Department directs student borrowers in SAVE plan to prepare for repayment
More than 7 million student loan borrowers enrolled in a Biden-era repayment plan will begin receiving notices Friday with instructions to seek a new repayment plan, the Education Department said.
Borrowers enrolled in the SAVE plan, invalidated by a federal court earlier this month, have been in forbearance since July 2024 as a legal battle plays out in court. Starting July 1, loan servicers will begin issuing notices giving borrowers 90 days to select a new repayment plan.
Available repayment plans will result in higher monthly payments for most borrowers.
When Alexis Arredondo graduated with a degree in microbiology from the University of California, Los Angeles in 2024, he struggled to find a full-time job in research or public health. Instead, he began working part-time and freelance for nonprofit organizations in Southern California.
A first-generation college student, he took on about $40,000 in student debt and enrolled in the SAVE plan after graduating. Now, he says, he must choose between paying more per month, which would be difficult to afford, or a longer repayment period, which would increase his total interest payments.
“It’s very difficult to know where I’m going to get this money,” he said.
The SAVE plan was among several initiatives launched by President Joe Biden, a Democrat, to reduce Americans’ student debt burden.
Under President Donald Trump, a Republican, “the days of illegal loan forgiveness are behind us,” said Deputy Education Secretary Nicholas Kent.
“Let’s be clear, the Trump administration’s view is that when a student takes out a loan, they are responsible for paying it back,” Mr. Kent told The Associated Press.
The SAVE plan provided more lenient terms than other repayment plans, reducing loan payments to just 5 percent of the borrower’s discretionary income and providing forgiveness to borrowers who had made payments for at least 10 years and had initially borrowed $12,000 or less.
While the legal challenges played out, borrowers enrolled in the plan were not required to make payments. But debt balances began accruing interest following a court ruling last summer that blocked implementation of the SAVE plan, meaning some students will see the amount they owe increase.
Borrowers have felt whiplash as challenges to the SAVE plan have worked their way through the courts, said Mike Pierce, executive director of the Student Borrower Protection Center.
“Time and time again, education leaders from both parties have promised to fix the broken student loan system and called student debt a crisis,” he said. “And yet today, these same borrowers are being told it’s time to pay and they don’t have good options.” »
The most lenient income-based repayment plan is now calculated on at least 10% of an individual’s discretionary income.
Last year, the Trump administration and Congress made several changes to student loan repayment options that will take effect over the next two years. For one thing, new student loan borrowers will no longer have the option to defer payments due to unemployment or economic hardship.
“You’re talking about an urgent current affordability crisis, and you’ve taken away the most affordable diet option,” said Alexander Lundrigan, policy and advocacy manager at Young Invincibles, an advocacy group.
Earlier this month, the U.S. Court of Appeals for the 8th Circuit struck down the SAVE plan. Department of Education notices to borrowers starting Friday will ask them to enroll in a plan and resume payments as early as this summer.
Borrowers will be contacted by their loan servicers in stages, with a new group receiving a message every two weeks. Those who have been enrolled in the SAVE plan the longest will be the first to receive notifications.
This story was reported by the Associated Press.
