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

More than 7 million student borrowers enrolled in a Biden-era repayment plan will receive notices starting Friday with instructions to seek a new plan to repay their debt, the Education Department said.

Borrowers enrolled in the SAVE plan, which was struck down 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 of these borrowers.

The Education Department called the plan “illegal” and said in a statement Friday that it was based on “the false promise of student loan forgiveness and artificially low monthly payments.”

“Today’s guidance, which every borrower enrolled in the defunct SAVE plan will receive over the next week, puts an end once and for all to the Biden administration’s illegal student loan bailout program,” Undersecretary of Education Nicholas Kent said in a statement. “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 have to pay it back.

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 pay, or a longer repayment period, which would increase the amount of interest he has to pay.

“It’s very difficult to know where I’m going to get this money from,” he told the Associated Press.

The SAVE plan was among several initiatives launched by former President Joe Biden, a Democrat, to reduce Americans’ student debt burden.

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 to accrue interest following a court decision last summer which has blocked the implementation of the SAVE plan, meaning some students will see the amount they owe increase.

Borrowers felt whiplash as challenges to the SAVE plan made their way through the courts, said Mike Pierce, executive director of the Student Borrower Protection Center.

“Time and time again, education officials from both parties have promised to fix the broken student loan system and called student debt a crisis,” he told the Associated Press. “And yet today these same borrowers are being told it’s time to pay and they don’t have good options.”

Starting July 1, the Department of Education said a new income-driven repayment plan, called the Repayment Assistance Plan, would be an option for borrowers. The plan ties monthly payments based on the borrower’s income and number of dependents with fixed terms and repayment terms between 10 and 25 years.

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 loans will no longer have the option of being deferred 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.