Starting from Friday (August 1st), the Biden administration’s “Saving on a Valuable Education” (SAVE) plan has been abolished, meaning the zero-interest grace period enjoyed by federal student loan borrowers has officially ended. This puts millions of borrowers who have not resumed repayments at risk of rapidly increasing debt.
According to the U.S. Department of Education’s official website, for borrowers in SAVE plan forbearance status, if they have not repaid enough to cover the newly generated interest, their loan balance will start increasing again. The Department states that borrowers participating in the interest-free forbearance will not be retroactively charged interest.
The SAVE plan, implemented in the summer of 2023, was the most lenient repayment plan introduced by the Biden administration, significantly reducing the monthly payments for most borrowers. As of July this year, approximately 7.7 million federal loan borrowers had registered for the program.
However, the plan was recently halted by the Republican-led Congress. After President Trump signed the “Great and Beautiful Act,” the SAVE plan was completely abolished. The Trump administration criticized the plan as “illegal,” arguing that the Education Department did not have the authority to place borrowers in a zero-interest state.
According to higher education expert Mark Kantrowitz’s estimate, a borrower with a loan amount of $39,000 and an interest rate of 6.7%, if they continue to defer repayment, would accrue $219 in interest monthly.
Experts recommend that borrowers immediately assess alternative repayment options, with the most feasible being the Income-Based Repayment (IBR) plan, which links repayment amounts to borrower income. While the monthly payments under IBR may be double that of the SAVE plan, for low-income individuals, payments could be as low as $13 per month.
Despite new legislation phasing out existing income-driven repayment options and planning to introduce a new Repayment Assistance Plan (RPA) next year, most borrowers currently only have the choice between IBR and the standard repayment plan. The latter can be difficult for many families to afford as it is fixed over ten years.
Elaine Rubin, communications director at the education financial platform Edvisors, stated: “All borrowers participating in the SAVE plan must now start considering their next steps to prevent further deterioration of debt.”
Borrowers can explore repayment plans through the federal student loans website, or apply for specific deferments based on conditions such as unemployment to avoid further accumulation of interest.