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Student loan borrowers could face $3,500 more in interest this year. Who will be affected by SAVE plan
The Department of Education announced that interest accrual will restart for borrowers enrolled in the Saving on a Valuable Education (SAVE) plan
The US Department of Education announced on Wednesday, that interest accrual will restart for borrowers enrolled in the Saving on a Valuable Education (SAVE) plan starting August 1, due to a federal court injunction blocking parts of the program. This change could lead to significant interest accumulation, with estimates suggesting borrowers might face up to $3,500 more in interest this year, depending on loan balances, interest rates, and repayment status.
Borrowers Affected by the SAVE Plan Interest Increase
Approximately 8 million borrowers currently enrolled in the SAVE plan are impacted. These borrowers include:
Low- and Middle-Income Borrowers: The SAVE plan, launched in August 2023, was designed for borrowers with lower incomes, offering $0 payments for those earning below 225% of the federal poverty line. These borrowers, many of whom relied on the plan’s interest subsidy to prevent balance growth, will now see interest accrue, potentially increasing their loan balances significantly.
Borrowers Pursuing Loan Forgiveness: SAVE offered faster forgiveness and progress toward Income-Driven Repayment (IDR) or Public Service Loan Forgiveness (PSLF). With interest resuming and forbearance not counting toward forgiveness, these borrowers face stalled progress and growing balances.
Borrowers in Forbearance: Since July 2024, SAVE plan borrowers have been in a court-ordered forbearance, with no payments due and, until now, no interest accrual. The restart of interest on August 1, means loan balances will grow unless payments are made, affecting those who remain in forbearance until at least September, when loan servicers expect to resume.
Specific Demographics: Data from 2015–2016 indicates that 27% of borrowers owed more than their original loan due to interest, with higher rates among Black borrowers (52%), Pell Grant recipients (33%), and those without a degree (31%). These groups, often enrolled in SAVE for its affordability, are particularly vulnerable to balance growth under the new interest accrual.
Why Interest Is Increasing
The SAVE plan’s terms, including a zero-interest forbearance and interest subsidies, were blocked by a federal court following lawsuits from Republican-led states, arguing the plan exceeded Congressional authority. The 8th Circuit Court of Appeals’ February 2025 ruling upheld this injunction, and a subsequent April district court order prompted the Department of Education to resume interest accrual to comply.
Without SAVE’s protections, unpaid interest will capitalize, increasing loan balances.
Who Is Not Affected
Borrowers in IBR: The Income-Based Repayment plan, created under separate legislation, remains unaffected by the SAVE injunction and is the only IDR plan still accepting new enrollments. Borrowers switching to IBR can continue progress toward forgiveness.
New Borrowers Post-July 2026: Under proposed reforms, new loans disbursed after July 1, 2026, will only have access to a standard repayment plan or RAP, not SAVE.
Private Loan Borrowers: These changes apply only to federal loans, not private ones, though private loan rates may indirectly shift with economic trends.
