The U.S. Department of Education has announced a proposed settlement that could alter the landscape of student loan repayment significantly. The Saving on a Valuable Education (SAVE) plan, which was known for its flexible and generous approach to income-driven repayment, will be terminated pending court approval. This decision comes in response to legal challenges from Republican state attorneys general, particularly from Missouri, who argued that the SAVE plan was excessively generous.
Biden’s SAVE Plan Ends Amid Controversy
Under this settlement, the Department of Education will stop enrolling new borrowers in the SAVE plan and deny all pending applications associated with it. Approximately 7 million borrowers currently enrolled will need to transition to new repayment options. This includes choosing between fixed payment plans and income-based repayment plans, both set to be implemented under the Republicans’ One Big Beautiful Bill Act (OBBBA) by July 2026.
Impacts on Borrowers
The termination of the SAVE plan means that borrowers are once again facing uncertainty. Payments had been paused during the pandemic, but interest on loans resumed accruing as of August. Nicholas Kent, the Under Secretary of Education, emphasized the obligation of borrowers to repay loans, stating, “the law is clear: if you take out a loan, you must pay it back.”
- Approximately 7 million borrowers to be transitioned to alternative repayment plans.
- New plans expected by July 2026.
- Monthly payments could be as low as $0 for some borrowers.
Scott Buchanan, head of the Student Loan Servicing Alliance, commented on the challenges ahead. He noted that many SAVE borrowers have not made payments in years and will require significant support as they navigate these new requirements.
Current Borrower Situation
The situation for student loan borrowers remains precarious. According to recent federal data, around 12 million borrowers are significantly behind on payments. This includes:
- 5.5 million currently in default.
- 3.7 million more than 270 days late.
- 2.7 million in earlier delinquency stages.
Experts warn that this transition could push more borrowers to default if not managed properly. Persis Yu from Protect Borrowers indicated that the Department of Education’s decision could lead to increased financial strain on millions of borrowers.
The proposed settlement aims to conclude a lengthy legal battle surrounding the SAVE plan in favor of more traditional repayment systems. As discussions continue, borrowers await clarity on their repayment obligations moving forward.
