7 Million Student Loan Borrowers Will Need to Change Plans as SAVE Gets Nixed

The Education Department entered into a settlement agreement this week that will end the popular Saving on a Valuable Education (SAVE) plan and force more than seven million federal student loan borrowers to change repayment plans. Most of those borrowers will see their monthly payments increase as a result. But many details about the transition remain unclear.

The settlement agreement is intended to resolve a legal challenge filed by a group of Republican-led states against the Biden-Harris administration in 2023 over the SAVE plan, which the states argued was illegal. The SAVE plan is an income-driven repayment (IDR) plan that had offered borrowers affordable monthly payments and eventual student loan forgiveness. A federal appeals court issued an injunction in 2024 blocking the program (but not quite striking it down) while the legal challenge continued. That forced more than seven million borrowers into an administrative forbearance, and they’ve been stuck in limbo since then. No payments have been due during the forbearance, but interest started accruing on balances again in August under a Trump administration order, and the forbearance period hasn’t counted toward student loan forgiveness under IDR or Public Service Loan Forgiveness (PSLF).

The settlement agreement means the end of the SAVE plan is near, and many borrowers in the administrative forbearance will need to switch to more expensive repayment plans. Although Congress passed legislation last summer to phase out the SAVE plan by July 2028, this week’s settlement agreement will dramatically accelerate that timeline. But there are key questions about what the transition will look like. Here’s the latest.

Settlement agreement blocks student loan forgiveness and ends the SAVE plan

The settlement agreement announced this week will definitively end the SAVE plan as well as its predecessor plan, Revised Pay As You Earn (REPAYE). New enrollments in the SAVE plan will cease, student loan forgiveness at the end of their 20- or 25-year terms will not be permissible while enrolled in the program, and borrowers in the forbearance will be forced to change to a different repayment plan.

“Defendants will not forgive loans under the SAVE Plan (or under the REPAYE plan) using the Department of Education’s income-contingent repayment (ICR) authority, Higher Education Act of 1965 § 455, 20 U.S.C. § 1087e, as it was interpreted by the SAVE Plan Final Rule,” reads the settlement agreement. “Defendants will not implement any provisions of the SAVE Plan Final Rule,” except for one provision that allows for certain deferment and forbearance periods to count toward IDR student loan forgiveness. 

Borrowers who have reached the end of their 20- or 25-year IDR term under the SAVE plan would need to switch to one of the other IDR plans (ICR, PAYE or IBR) to qualify for student loan forgiveness. And borrowers who meet those criteria should apply to switch plans before the end of December if they want to avoid tax consequences associated with loan forgiveness, which kicks in starting on January 1, 2026.

“Defendants will not enroll any new borrowers in the SAVE Plan, will deny any pending enrollment applications for the SAVE Plan, and will continue working to move all current borrowers out of the SAVE Plan,” continues the agreement. “Defendants will likewise not enforce the original REPAYE rule or otherwise enroll any borrowers, including SAVE borrowers, into the original REPAYE Plan.”

“If the agreement is approved by the court, it will mark the definitive end of the Biden Administration’s illegal student loan bailout agenda, putting it to rest once and for all, and end the limbo that more than 7 million borrowers currently face when it comes to not being able to make payments on their federal loans,” said the Department of Education in a statement on Tuesday.

Mixed responses to settlement agreement ending SAVE plan

The Trump administration praised the agreement that will effectively end the SAVE plan.

“For four years, the Biden Administration sought to unlawfully shift student loan debt onto American taxpayers, many of whom either never took out a loan to finance their postsecondary education or never even went to college themselves, simply for a political win to prop up a failing Administration,” said Under Secretary of Education Nicholas Kent in the statement. “The Trump Administration is righting this wrong and bringing an end to this deceptive scheme. The law is clear: if you take out a loan, you must pay it back. Thanks to the State of Missouri and other states fighting against this egregious federal overreach, American taxpayers can now rest assured they will no longer be forced to serve as collateral for illegal and irresponsible student loan policies.”

But student loan borrower advocacy organizations were highly critical of the agreement.

“While millions of student loan borrowers struggle amidst the worsening affordability crisis—as the rising costs of groceries, utilities and healthcare continue to bury families in debt, billionaire Education Secretary, Linda McMahon chose to strike a back-room deal with a right-wing state Attorney General and strip borrowers of the most affordable repayment plan that would help millions to stay on track with their loans while keeping a roof over their head,” said Protect Borrowers in a statement. “This settlement is pure capitulation—it goes much further than the suit or the 8th Circuit order requires. The real story here is the unrelenting, right-wing push to jack up costs on working people with student debt.”

“At a time when everyone is talking about the cost of living, this administration eliminated the most affordable repayment plan in history,” said Alexander Lundrigan, Higher Education Policy and Advocacy Manager at Young Invincibles, in a statement. “With SAVE gone, borrowers who couldn’t afford their payments before will likely be pushed into default, and those who were managing will be forced to make cuts elsewhere to meet their new payment. Nearly 7.7 million people are enrolled in SAVE, and now each of them must figure out how to navigate a new repayment plan. The thoughtless attacks on borrowers must stop.”

What happens next for student loan borrowers in the SAVE plan

Student loan borrowers in the SAVE plan won’t need to take immediate action and can remain in the administrative forbearance for the time being. But these borrowers will need to transition to other repayment plans in the coming months, which will likely mean higher payments in most cases. 

The settlement agreement requires that the Education Department (ED) initiate a new rulemaking process to create new regulations implementing the terms of the settlement agreement and outlining how student loan borrowers will transition from SAVE to other repayment plans. But the details remain murky.

“ED plans to conduct a negotiated rulemaking to effectuate the settlement, but has not given a timeline for this rulemaking,” said The Institute for College Access and Success (TICAS) in an analysis this week. “As part of the rulemaking, they also plan to implement the termination of the two other repayment plans that were eliminated in OBBBA: the Income-Contingent Repayment (ICR) and Paye As You Earn (PAYE) plans.”

But SAVE plan borrowers currently are facing significant uncertainty about timing and next steps. TICAS warned that the road ahead may be bumpy.

“All ED has said so far regarding timing is that the Department, ‘along with the federal student loan servicers,’ will ‘reach out to SAVE borrowers in the coming months with more information,’” said TICAS. “ED also notes that it will ‘begin direct outreach to impacted borrowers to provide guidance about how to repay their student loans in the coming weeks.’ ED is not well prepared to smoothly transition borrowers into other plans.”

Ultimately, student loan borrowers stuck in the SAVE Plan forbearance should start exploring their repayment options now. If they wait too long, depending on how the upcoming rulemaking goes, they could find themselves being forced into an alternative plan that they didn’t ask for.