Nearly Half a Million Student Loan Repayment Plans at Risk: Report

Newsweek

14 hours ago

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The Department of Education plans to deny 460,000 federal student loan borrowers from accessing lower repayment plans, according to a Politico report citing internal department documents.
The affected students had selected the Saving on a Valuable Education (SAVE) Plan, a Biden-era policy that generally came with the lowest monthly payments and which the Education Department functionally abolished earlier this month.
Newsweek has contacted the Department of Education for comment outside regular hours.
Why It Matters
The amendments to the SAVE Plan and the decision to deny lower-income students access is in line with the steps taken by President Donald Trump's administration to phase out educational policies and financial support systems enacted under his predecessor.
While the Education Department has said it will support students transitioning to alternative plans, experts have said this could result in hundreds of dollars being tacked onto their monthly payments.
What Was the SAVE Plan?
The SAVE Plan was introduced in 2023, replacing the Revised Pay As You Earn (REPAYE) Program. Intended as a more generous income-driven option, undergraduates enrolled in the plan had payments capped at 5 percent of their discretionary income, rising to 10 percent for graduate borrowers, per Politico.
According to the Department of Education, there are almost 7.7 million borrowers enrolled in SAVE. Amid a string of legal disputes and a court injunction blocking elements of SAVE in June 2024, enrollees have been in legal limbo and their loans placed in general forbearance with a zero percent interest rate since then.
What To Know
In early July, the Education Department announced that it would recommence interest accrual on loans in the "illegal" SAVE Plan. The change is set to take effect on August 1.
An Education Department spokesperson told Politico that the reason for the 460,000 applications being denied was because loan servicers were now unable to process these "as SAVE is no longer an option, as it is illegal."
In the place of SAVE, the department is rolling out two alternatives as part of the One Big Beautiful Bill Act, a budget package that Trump signed into law on July 4. These include a revised 10-year standard repayment plan and a new Repayment Assistance Plan.
Education Secretary Linda McMahon testifies before the Senate Appropriations Committee's Labor, Health and Human Services, and Education Subcommittee in the Dirksen Senate Office Building on Capitol Hill in Washington, D.C., on June 3.
Education Secretary Linda McMahon testifies before the Senate Appropriations Committee's Labor, Health and Human Services, and Education Subcommittee in the Dirksen Senate Office Building on Capitol Hill in Washington, D.C., on June 3.In its early July news release, the Education Department said it would "support borrowers in selecting a new, legal repayment plan that best fits their needs and helps them get on a sustainable financial path while protecting American taxpayers." The department has also begun outreach to the almost 8 million borrowers enrolled in SAVE, advising them on how to switch to a new plan.
However, the new plans are "generally less generous than SAVE, requiring borrowers to pay more," according to Robert Kelchen, the head of the Department of Educational Leadership and Policy Studies at the University of Tennessee, Knoxville.
According to the Student Borrower Protection Center, the decision to resume interest payments on SAVE debts could also force borrowers to pay more than $3,500 annually, or $300 per month, in additional fees.
What People Are Saying
Education Secretary Linda McMahon said in a news release on July 9: "Since day one of the Trump Administration, we've focused on strengthening the student loan portfolio and simplifying repayment to better serve borrowers. As part of this effort, the Department urges all borrowers in the SAVE Plan to quickly transition to a legally compliant repayment plan—such as the Income-Based Repayment Plan. Borrowers in SAVE cannot access important loan benefits and cannot make progress toward loan discharge programs authorized by Congress."
Robert Kelchen, the head of the Department of Educational Leadership and Policy Studies at the University of Tennessee, Knoxville, told Newsweek: "The Department of Education fundamentally disagrees with the SAVE Plan and wants to quickly move to the new repayment options passed in the recent budget reconciliation bill. The fate of the 460,000 borrowers currently in SAVE will likely end up in court again, and the Trump administration will likely win based on other recent Supreme Court decisions in favor of [the Education Department]."
What Happens Next
The department has said interest will not be added retroactively to those previously enrolled on the SAVE Plan. It has urged borrowers to visit the government's Loan Simulator to assess monthly repayment options.