Enrolled in this student loan repayment plan? It's time to consider an exit.

Washington Post

3 days ago

If you're one of the 7.7 million people enrolled in the student loan repayment plan known as Save, it is time to consider an exit.
In less than a week, the Education Department will resume applying interest on loans being repaid through the Biden-era program. And in less than three years, the program will cease to exist, which could happen sooner if Republicans succeed in abolishing the plan through the courts.
The Save saga has spanned two administrations and left millions of borrowers in a state of uncertainty. The income-driven program, which President Joe Biden introduced in 2023, offers low monthly payments and a faster path to loan forgiveness. In two separate legal challenges last year, Republican-led states accused Biden of exceeding his legal authority by creating a multibillion-dollar program without congressional approval. An injunction in one of those cases has left Save in legal limbo since last summer and led the Education Department to postpone payments for enrollees through an interest-free forbearance.
But the department will return to adding interest to loan balances on Aug. 1, weeks after the tax law that President Donald Trump signed this month ended Save and gave enrollees until 2028 to leave the plan.
'If you're on Save, you better start looking at options and figuring out which one best fits you,' said Scott Buchanan, executive director of the Student Loan Servicing Alliance, a trade group for loan servicers. 'Sitting on the sidelines is not a good strategy because we definitely know it's going away.'
There are as many moving parts as there are options for borrowers. Here's what we know.
It's going away. Earlier this month, the Education Department said it would resume applying interest on Aug. 1 to the loans held by borrowers enrolled in Save. Those borrowers have benefited from an interest-free forbearance that postponed their payments since last summer amid the ongoing lawsuit. The department said ending the subsidy is necessary to comply with the court injunction that put Save on hold, but a borrower affected by the decision is petitioning the court to stop the agency.
Unless the court intervenes, interest will restart soon. The Education Department is encouraging Save enrollees to switch to another plan, but borrowers can continue to postpone their payments and remain in the Save forbearance. Yet they will soon see interest accrue on their loans.
'The forbearance isn't ending. So people have time. They don't have to do anything right this second, and what they should do sort of depends on their long-term student loan strategy,' said Betsy Mayotte, president and founder of the Institute of Student Loan Advisors.
Both cases are still in play.
First, a refresher. Republican-led states filed separate lawsuits in Kansas and Missouri last year to strike down Save. District judges in both cases imposed temporary injunctions on components of the plan, such as capping monthly payments at 5 percent of a borrower's discretionary income. The U.S. Court of Appeals for the 10th Circuit decided last June to stay the injunction in Kansas, letting the Education Department move forward, but the case in Missouri brought everything to a halt.
Dissatisfied with the partial injunction, Missouri Attorney General Andrew Bailey petitioned the U.S. Court of Appeals for the 8th Circuit to halt the Save plan in its entirety amid ongoing litigation. The court agreed and later expanded the injunction.
So where do things stand now? The courts have yet to rule on the merits of the lawsuits against Save, even though the injunction has put payments on hold since last summer.
The Trump administration could decide to stop defending the Save plan in court, especially now that congressional Republicans have used the savings from eliminating the program to offset the cost of extending tax cuts. The Education Department did not immediately respond to inquiries about the fate of the lawsuits.
If the courts decide to rule on the merits of either lawsuit this year, it could bring the Save plan to an end sooner than the tax bill dictates. As it stands, the tax law gives current Save enrollees until July 1, 2028, to change plans.
The tax law that Trump signed into law this month gets rid of Save. The plan will cease to exist for new borrowers beginning July 1, 2026, while people who are currently enrolled in Save will have until July 1, 2028, to switch out of the plan.
Instead of seven repayment options, congressional Republicans have whittled the choices down to two new plans. The new standard plan will stretch monthly payments out from 10 to 25 years, depending on the size of the debt. People with larger debts, say more than $100,000, will be in repayment for up to 25 years, while those who owe less than $25,000 will repay for no more than 10 years.
Meanwhile, payments on the new income-driven repayment plan, dubbed the Repayment Assistance Plan, are based on a borrower's total adjusted gross income, ranging from 1 to 10 percent depending on earnings. Borrowers would have to make a minimum monthly payment of $10, ending the zero-dollar payment option for low-wage borrowers.
People who are keeping up with their bills but not making progress on paying down the principal will have their principal reduced by up to $50 a month. The government will also waive any interest that is left over after a borrower makes a monthly payment. Say your payment is $60 but you owe $80 a month in interest, the Education Department will waive the remaining $20. The RAP plan offers small monthly loan forgiveness, but instead of forgiving the remaining balance after 20 or 25 years of payments as custom under other IDR plans, the new one extends the term to 30 years.
These two plans will be the only options afforded to new borrowers after July 1, 2026. Current borrowers have a few options. They can choose either of the new plans or migrate over to an older plan known as Income-Based Repayment, which was created by Congress in 2007. That plan caps monthly payments at 15 percent of discretionary income for people who took out loans before July 2014. For those who borrowed after that date, payments are capped at 10 percent.
'Borrowers who have been paying for a while feel exhausted and confused, [and] should take heart that Congress has finally stepped in to provide clarity, because absent that, the executive branch and courts have made it unbearably confusing,' said Alex Ricci, president of the National Council of Higher Education Resources, which represents private lenders, loan servicers, debt collectors and loan guaranty agencies.
Switching to IBR could appeal to borrowers who are close to hitting the mark to receive loan forgiveness. Rather than contend with the 30-year schedule under the new RAP, borrowers with pre-2014 loans qualify for debt cancellation after 25 years under IBR and those with newer loans can have their remaining balances erased after 20 years.
Yes, the remaining three IDR plans — Income-Based Repayment, Pay As You Earn and the Income-Contingent Repayment — are still open to borrowers, at least for now. After July 1, 2028, only the IBR plan will remain an option for current borrowers because of changes in the tax bill. For now, borrowers can enroll in the three plans and accrue qualifying payments toward loan forgiveness, said Kyra Taylor, a staff attorney at the National Consumer Law Center. Borrowers in Save can make payments on their loans, but they will not count toward debt cancellation.
The other IDR plans have different terms depending on when you borrowed and whether you have loans for undergraduate or graduate school. The loan simulator on studentaid.gov can help borrowers determine which plan is most affordable for them, but Taylor said that some borrowers have complained of not getting accurate calculations. Education Department officials said they are not aware of any problems with the simulator and noted borrowers can also contact their loan servicer — the companies that manage the federal portfolio — for help.
Servicers are contending with a backlog of 1.5 million IDR applications dating back to last year. Buchanan at the servicing alliance said a big portion of the backlog is people who selected the lowest monthly payment option on an older version of the application that included Save. The Education Department revised the application earlier this year to comply with the Save injunction and is encouraging anyone who applied between July 2024 and April 2025 before the update to resubmit. Getting through the process should also be easier now that the department has re-enabled a function that allows borrowers to consent to have their tax data imported from the IRS.
Persis Yu, deputy executive director at the Student Borrower Protection Center, cautions borrowers to take into consideration that their payments change if their financial situation has changed since submitting a prior application.
'If your income has changed, it may mean that you're going to get bumped up to a higher payment amount. That is something that people should be aware of,' Yu said.
Save enrollees working toward Public Service Loan Forgiveness — which cancels loans of government and nonprofit employees after 10 years of service and 120 monthly debt payments — have a couple of options. They can switch to another IDR plan, as many have already done. Yu said that while other plans will cost more than Save, for borrowers who are nearing the forgiveness threshold, it may be worth the momentary sacrifice.
Public servants can also remain in the Save forbearance, though those months will not count toward cancellation. But they could take advantage of a PSLF buyback initiative to retroactively make a lump-sum payment to get credit for the forbearance period.
'The people that are closer to the 120 now are more content with the idea of buyback than the people who maybe still have eight years in front of them,' Mayotte said. 'Some people have other financial priorities right now and would rather suck it up down the road and pay the lump sum.'