Janice Lozano
The COVID-19 pandemic has had a devastating impact on the finances of millions of Americans, and many are now struggling to pay their student loans. In response to this crisis, the US government has made several changes to the federal student loan program. The Trump administration has ended the Biden-era pause on student loan repayments, affecting nearly 43 million borrowers. The most notable change is the winding down of the SAVE repayment plan, which offered low monthly payments and expedited loan forgiveness. The new Big Beautiful Bill Act introduces tighter borrowing limits and significantly reduces the number of repayment plans available. These changes have sparked criticism, with some arguing that they will result in higher monthly payments and increased financial burden for borrowers.
| Characteristics | Values |
|---|---|
| Number of student loan borrowers | 43 million |
| Number of borrowers in the SAVE Plan | 7.7 million |
| Number of borrowers who will be denied repayment plan | 460,000 |
| Number of repayment options for new borrowers | 2 |
| New repayment options | RAP, Standard Repayment Plan |
| Interest accrual for borrowers with loans in the SAVE Plan | Restarted |
| New loan limits for parents and caregivers | $20,000 a year and $65,000 per child |
| Lifetime limit for undergrad and graduate loans combined | $257,500 per person |
| Date of changes | July 1, 2028 |
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What You'll Learn
Student loan repayment plans are changing
Student loan repayment plans are undergoing significant changes, with the US federal government introducing a new system that may increase costs for some borrowers. The Trump administration is overhauling the current repayment plan menu, replacing it with two new plans: a revised 10-year standard repayment plan and the Repayment Assistance Plan (RAP). This transition comes after legal challenges and criticism surrounding the Biden administration's SAVE plan, which offered lower repayment options to nearly 8 million borrowers. The new RAP plan, however, has drawn concerns as it requires even those with no income to make a $10 payment, which may push distressed borrowers into default. Additionally, RAP may negatively impact couples by doubling their combined payments due to higher income bands.
The simplification of the student loan system aims to enhance fiscal responsibility and reduce costs for taxpayers. The Trump administration intends to provide borrowers with guidance on selecting a legal repayment plan that aligns with their financial situation. This shift also encourages employers to offer student loan reimbursement benefits to their employees, with companies like Nvidia, Estee Lauder, and Fidelity Investments already providing such support. While the new system may increase costs for some, it is designed to streamline repayment options and ensure borrowers repay their loans.
The changes to student loan repayment plans are part of a broader overhaul of the loan system, which has been in flux for the past six years. The Biden administration's SAVE plan, introduced in 2023, was blocked by courts in 2024 and faced criticism from the Trump administration as being fiscally irresponsible. This legal limbo left borrowers without clear guidance on repayment. The new repayment plans aim to address these issues and provide a more sustainable path for borrowers.
The upcoming modifications to student loan repayment structures are expected to have a notable impact on borrowers. The elimination of the SAVE plan and other affordable options means that nearly 8 million people will need to transition to alternative repayment plans. The new system, starting next summer, will offer borrowers two repayment options, reducing the previous variety of plans. This shift underscores the dynamic nature of student loan policies and the ongoing challenges in balancing the needs of borrowers with fiscal responsibility.
The changes in student loan repayment plans highlight the evolving landscape of student debt management. While the new plans aim to streamline the process and reduce costs for taxpayers, they also present potential challenges for borrowers, especially those facing financial hardships. It remains crucial for borrowers to stay informed about the available repayment options and make decisions that align with their financial circumstances. The Education Department is expected to provide further guidance to assist borrowers in navigating these evolving repayment structures.
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Interest accrual is restarting for borrowers with loans in the SAVE Plan
The US Department of Education has announced that interest accrual is restarting for borrowers with loans in the Saving on Valuable Education (SAVE) Plan. This means that borrowers in the SAVE Plan will see their loan balances grow when interest starts accruing on August 1, 2025. The interest accrual restart is a result of a federal court injunction that blocked the SAVE Plan, which included the Department's action of putting SAVE borrowers in a zero percent interest rate status.
The Department is instructing loan servicers to begin charging interest on impacted loans starting on August 1, 2025, and this will not be assessed retroactively. The SAVE Plan, created under the Biden administration, was struck down as illegal by the 8th US Circuit Court of Appeals, which held that the plan was unlawful in February 2025. As a result, borrowers enrolled in the plan had their federal student loans placed in forbearance with a zero percent interest rate.
The Department has stated that it does not have the authority to put borrowers into a zero-percent interest rate status since the injunction, and it is now taking steps to bring fiscal responsibility to the federal student loan portfolio. The Department will begin direct outreach to the nearly 7.7 million borrowers enrolled in the SAVE Plan, providing instructions on how to move to a legal repayment plan so that borrowers can begin making qualifying payments.
Borrowers in the SAVE Plan are urged to quickly transition to a legally compliant repayment plan, such as the Income-Based Repayment Plan. It is important to note that borrowers in the SAVE Plan cannot access important loan benefits and cannot make progress toward loan discharge programs authorized by Congress. The Department continues to make progress on the backlog of submitted IDR applications, and borrowers switching from the SAVE Plan to another IDR plan can expect quick and timely processing.
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The number of repayment plans is being reduced
The number of repayment plans for student loans is being reduced as part of a broader overhaul under President Trump's 'Big Beautiful Bill'. The new legislation will simplify the student loan system and curb costs to taxpayers.
The previous menu of repayment plans is being dismantled and replaced with two new plans, available by July 1, 2026. Firstly, there is a revised standard repayment program, where fixed payments are made over a term based on the loan amount. The larger the loan, the longer the term, ranging from 10 years for loans under $25,000 to 25 years for loans over $100,000. The second option is the Repayment Assistance Program (RAP), which is an income-driven repayment plan. Payments range from 1% to 10% of the borrower's adjusted gross income over a term of up to 30 years, after which any remaining debt is forgiven.
The new RAP plan has some drawbacks. Even those with no income will be required to make a $10 payment, which could push some distressed borrowers into default. Additionally, RAP may result in a ""marriage penalty", where a couple's combined income catapults them into a higher income band, resulting in higher payments.
The changes come after the Biden Administration's SAVE Plan was blocked by the courts in 2024. Nearly eight million borrowers will be affected by the transition and will need to calculate their best repayment option moving forward.
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The Biden Administration's 'loan forgiveness' promises were ruled unlawful
The Biden administration's loan forgiveness promises were ruled unlawful by the Supreme Court in June 2023. The ruling came after a 6-3 vote, where the justices decided that the Biden administration had overstepped its authority by announcing it would cancel up to $400 billion in student loans. This decision was made in the case of Biden v. Nebraska, with Chief Justice John Roberts writing for the court and characterizing the decision as a straightforward interpretation of federal law.
The Biden administration's loan forgiveness program was first announced in August 2022, during the COVID-19 pandemic, and was intended to benefit approximately 43 million Americans. However, federal courts in Missouri and Texas put the program on hold, and it was ultimately struck down by the Supreme Court. The court ruled that the program did not comply with the HEROES Act and other federal laws.
In response to the ruling, the Biden administration introduced the SAVE Plan, which was intended to provide an alternative form of student loan relief. However, this plan has also faced legal challenges, with a federal court blocking parts of it in June 2024 and the Eighth Circuit Court of Appeals ruling it unlawful in February 2025.
The SAVE Plan was designed to provide borrowers with more affordable repayment options and prevent loan balances from spiraling into tens of thousands of dollars. However, critics argue that it is illegal and that it does not offer borrowers important loan benefits or progress toward loan discharge programs authorized by Congress. As a result of the legal challenges, borrowers enrolled in the SAVE Plan have been instructed to transition to a legally compliant repayment plan, such as the Income-Based Repayment Plan.
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The Trump Administration is simplifying the repayment system
The Trump Administration is making changes to the student loan repayment system, with the goal of simplifying the process for borrowers. The Department of Education has started implementing new provisions from Trump's spending bill, which includes changes to eligibility for income-based repayment plans and new borrowing limits.
The Trump Administration has deemed the SAVE plan "illegal", citing the need to bring “fiscal responsibility” to federal student loans. The SAVE plan, which was introduced by the Biden Administration, has been blocked in federal courts. The Department of Education is now encouraging borrowers to transition to a legally compliant repayment plan, such as the Income-Based Repayment Plan.
Trump's spending bill eliminates existing income-driven repayment plans and introduces two new options: a standard repayment plan and a Repayment Assistance Plan (RAP). The RAP plan sets monthly payments at 1% to 10% of the borrower's income, with any remaining balance forgiven after 30 years. However, this plan requires even those with no income to make a token $10 payment, which has raised concerns about distressed borrowers potentially defaulting.
The new system will also amend the Public Service Loan Forgiveness program, which forgives student debt for government and nonprofit workers after 10 years of qualifying payments. Payments made under the new income-driven repayment plan will count toward forgiveness.
Starting next summer, new borrowers will have just two repayment options, simplifying the previous menu for paying off higher-education debt. The Trump Administration has stated that it will support borrowers in selecting the best repayment plan for their needs, helping them get on a sustainable financial path.
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Frequently asked questions
The SAVE plan, short for Saving on a Valuable Education, was a Biden-era repayment plan that capped payments at 5% of the borrower's discretionary income for undergraduate loans and 10% for graduate loans. The plan was ruled illegal by federal courts and will be shut down by July 1, 2028.
The new student loan repayment plans are part of President Trump's One Big Beautiful Bill Act, which includes tighter borrowing limits and reduced repayment options. New borrowers will have just two repayment options, down from the current seven plans. The new plans will assign a repayment window of between 10 and 25 years, with monthly payments based on the size of the loan balance.
Borrowers in the SAVE plan will need to switch to a new repayment plan. The Trump administration has said it will support borrowers in selecting a new, legal repayment plan that fits their needs. However, critics argue that the changes could result in higher monthly payments and cause financial difficulties for those already struggling to repay their loans.
