Why student loan bills are doubling for millions as the SAVE plan ends this August
Millions of federal student loan borrowers across the US are expected to see their monthly repayments double as the Biden-era SAVE (Saving on a Valuable Education) plan comes to an end. The plan, which allowed interest-free forbearance on repayments, is now effectively defunct following recent policy changes announced by the Trump administration.The SAVE plan had enrolled nearly 7.7 million borrowers, according to the US Department of Education. Many of these borrowers are now required to transition to new repayment plans, most of which result in significantly higher monthly bills. The end of the SAVE programme will particularly affect borrowers who are unable to make payments that cover accruing interest, which resumes from August 1, as announced earlier this month.SAVE plan allowed reduced repayments for millionsUnder the SAVE plan, introduced during President Biden’s term, borrowers were allowed to make payments based on just 5% of their discretionary income. This plan was described as “incredibly generous” by Scott Buchanan, Executive Director of the Student Loan Servicing Alliance, a trade group for federal loan servicers, as reported by NBC News.While legal challenges to the SAVE plan were underway, the Biden administration placed enrolled borrowers in forbearance, which paused mandatory payments and interest accumulation. However, with the programme now defunct, this interest-free period is set to expire, and borrowers who do not switch to a new plan will begin to see their loan balances grow again.Borrowers advised to switch to income-based repayment plansUS Secretary of Education Linda McMahon stated in a press release, as reported by NBC News, that borrowers in the SAVE programme should “quickly transition to a legally compliant repayment plan — such as the Income-Based Repayment Plan.”According to NBC News, Buchanan explained that the IBR plan is now the most viable option for most former SAVE enrollees. The IBR plan calculates repayments at 10% of a borrower’s discretionary income, a substantial increase from the 5% calculation under SAVE. For some borrowers with older loans, the share could rise to 15%.Higher repayment burdens under IBR plansThe end of the SAVE plan is likely to impose financial pressure on many borrowers. Nancy Nierman, Assistant Director of the Education Debt Consumer Assistance Program in New York City, told NBC News that many federal student loan borrowers “simply won’t be able to afford the payments under IBR.”Other income-driven repayment plans created by Congress in the 1990s are also expected to be phased out under what President Donald Trump has referred to as his “big beautiful bill,” as reported by NBC News. These plans typically cap monthly payments at a percentage of discretionary income and cancel remaining debt after 20 or 25 years.TOI Education is on WhatsApp now. Follow us here.
