Nearly 8 million student loan borrowers in the federal program known as SAVE will see interest start to rack up again on Aug. 1, the Trump administration announced this week.
Education Secretary Linda McMahon, in a statement, urged “all borrowers in the SAVE Plan to quickly transition” to a different loan program.
Borrowers in the SAVE plan are not required to start making payments or switch to a different plan right away, but they should figure out what course of action works best for them, student loan advocates and financial advisers said. The SAVE plan and certain other student loan programs will end in July 2028, under the budget bill passed by Congress this month.
“Being in limbo is just not good,” said Susan Quigley, a certified financial planner in Garden City. “From a psychological point of view, they have this debt hanging over their heads, and it can be very stressful.”
Interest rates for student loans range from 6.39% for direct subsidized and unsubsidized loans, to 8.94% for Direct PLUS loans to parents and graduate and professional students, according to the Department of Education.
Student debt “really has the potential to burden folks’ broader economic lives,” said Aissa Canchola Bañez, policy director with the nonprofit Student Borrower Protection Center. “It’s really vital that folks pay attention to what’s happening.”
What is the SAVE plan, and why will borrowers see interest restart next month?
Former President Joe Biden introduced the SAVE, or Saving on a Valuable Education, plan in 2023. The program provided many borrowers with affordable, income-driven monthly payments, Bañez said. The program was challenged in federal court last year, and it has been blocked — with no interest accruing, and no payments due — while the legal challenges make their way through the courts.
The federal Education Department this week said the SAVE plan burdens taxpayers and is “unlawful” in light of court rulings this year. The agency said it will charge interest “to comply with a federal court injunction that has blocked implementation of the SAVE Plan, including the Department’s action to put SAVE borrowers in a 0% interest rate status.”
Bañez said no court ruling has required the government to resume charging interest.
What does this mean for borrowers in the SAVE plan?
The SAVE loans remain in forbearance so borrowers do not need to make payments. However, they “will see their loan balances grow when interest starts accruing on Aug. 1,” the Department of Education said in a statement.
The nearly 8 million SAVE borrowers owe almost $440 million, according to an analysis of federal loan data by the Student Borrower Protection Center. With an average balance of about $56,000, the typical borrower with an interest rate of 6.3% will accrue about $3,500 per year in interest, the group said.
What should borrowers in the SAVE plan do?
Borrowers should use the Department of Education’s online Loan Simulator at Studentaid.gov to learn about eligibility and monthly payments under different programs, the agency said in a statement.
They should also consult with their student loan servicer to review their options, Bañez said.
Maura McDermott covers education. Since joining Newsday in 2012, she also has worked on the investigations team and covered real estate and the business of health care.
