Trump administration warns nearly 7 million student loan borrowers to act or face higher monthly payments
Millions of federal student loan borrowers enrolled in the Biden-era Saving on a Valuable Education (SAVE) repayment plan are about to face a major decision. Beginning in July, the U.S. Department of Education will begin notifying borrowers that they must choose a new repayment option within 90 days or risk being automatically moved into more expensive repayment plans.
The transition follows the court-ordered end of the SAVE plan, leaving nearly 7 million borrowers needing to find alternative repayment options as the Trump administration rolls out a new student loan system.
Nearly 7 million borrowers remain in the defunct SAVE plan
Despite the SAVE repayment plan being struck down earlier this year, nearly 7 million borrowers are still enrolled in it, according to Nicholas Kent, undersecretary of education at the U.S. Department of Education.
Kent said that only around 300,000 borrowers have exited the program in recent weeks, leaving millions still in a payment pause created during the legal battle over the plan.
According to the Congressional Research Service, more than 42 million Americans hold federal student loans, with outstanding debt exceeding $1.6 trillion.
Trump administration urges borrowers to leave SAVE. Education officials say remaining in SAVE is no longer beneficial for borrowers.
By staying enrolled, borrowers are not making progress toward loan forgiveness and are allowing interest to accumulate on their balances.
“It’s a problem for borrowers,” Kent said. “They’re not recognizing the benefit of making their payments.”
Kent added that borrowers need to transition to another repayment plan.
“SAVE borrowers have to move,” Kent said.
Why the SAVE plan is ending
The Biden administration introduced the SAVE plan in 2023, calling it the most affordable federal student loan repayment option ever created. The program lowered monthly payments for many borrowers and shortened the timeline to loan forgiveness for some participants.
However, Republican-led lawsuits challenged the legality of the program. Beginning in July 2024, millions of borrowers were placed into administrative forbearance while the courts considered the case.
Earlier this year, a federal appeals court ordered the program to end, prompting the Trump administration to begin transitioning borrowers into new repayment options.
The Department of Education will begin sending notices to SAVE borrowers starting July 1, but not everyone will receive them at the same time.
Kent said notices will be staggered throughout the summer to avoid overwhelming federal loan servicers.
Once borrowers receive their notice, they will generally have about 90 days to select a different repayment plan.
Officials have emphasized that borrowers do not need to take action until they receive their individual notification from their loan servicer.
Automatic enrollment could mean significantly higher payments
Borrowers who fail to choose a new repayment plan before their deadline will not remain in SAVE indefinitely.
Instead, the Department of Education says they will automatically be placed into either the Standard Repayment Plan or the new Tiered Standard Repayment Plan.
An email sent to SAVE borrowers, warned: “Your monthly payment amount will most likely go up if you are enrolled in either of these plans.”
The newly created Tiered Standard Repayment Plan will require borrowers to fully repay their loans over a repayment period tied to the size of their loan balance, with minimum monthly payments of $50.
Interest continues growing while borrowers remain in SAVE. Education experts warned that borrowers who remain in the SAVE payment pause continue accumulating interest while making no progress toward loan forgiveness.
Based on typical calculations, the typical SAVE borrower owes about $57,000 at an average 6.7% interest rate. Since interest resumed accruing in August, that balance has already increased by more than $2,500 for many borrowers.
Financial experts also noted that borrowers currently receive no credit toward forgiveness under either their repayment plan or the Public Service Loan Forgiveness program while they remain in SAVE.
Missing the deadline could eventually lead to default
Experts caution that failing to transition out of SAVE could create long-term financial consequences.
If borrowers are automatically placed into standard repayment plans and cannot afford the higher monthly payments, their loans could become delinquent. If they don’t make these payments, their loans will become delinquent and, after a year in delinquency, go into default.
Default can trigger additional collection actions and damage borrowers’ credit histories.
Even borrowers who act quickly could face delays.
According to a recent court filing, more than 530,000 federal student loan borrowers were already waiting for repayment plan applications to be processed at the end of April.
The Department of Education’s decision to stagger notification dates is intended to help loan servicers manage the expected surge in repayment plan requests.
Democrats push for automatic enrollment in cheaper plans
More than 60 Democratic lawmakers have urged the Department of Education to automatically place SAVE borrowers into the lowest-cost repayment plan available if they fail to make a selection before their deadline.
In a letter to the department, the lawmakers argued: “To mitigate the potentially devastating financial impact of this transition, ED should automatically enroll every borrower currently in the SAVE forbearance in the lowest cost repayment plan currently available to that borrower.”
The administration has instead indicated borrowers who take no action will be moved into the Standard Repayment Plan or Tiered Standard Repayment Plan.
New repayment options and broader student loan changes are arriving. Alongside the end of SAVE, the Trump administration is introducing new repayment options, including the Repayment Assistance Plan (RAP), which bases monthly payments on adjusted gross income. However, many borrowers are expected to pay more under RAP than under previous income-driven repayment plans.
The administration is also implementing broader student loan reforms through its recently enacted spending legislation, including new borrowing caps for graduate students and changes to federal Parent PLUS loan limits.
In an earlier Department of Education statement, Nicholas Kent said the reforms “will ensure students continue to have the access that they need for federal student loans, while helping prevent borrowers from taking on unmanageable debt levels that they may never be able to repay.”
Borrowers can compare available repayment options and estimate future monthly payments using the federal Loan Simulator before choosing a new plan.
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John Dealbreuin came from a third world country to the US with only $1,000 not knowing anyone; guided by an immigrant dream. In 12 years, he achieved his retirement number.
He started Financial Freedom Countdown to help everyone think differently about their financial challenges and live their best lives. John resides in the San Francisco Bay Area enjoying nature trails and weight training.
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