Douglas Olsen
The COVID-19 pandemic has had a significant impact on student loan repayment plans in the United States. In August 2023, the Biden administration introduced the Saving on a Valuable Education (SAVE) Plan, which offered a 42-month pause on payments and reduced monthly payments for borrowers below a certain income threshold. However, this plan was blocked by the courts in 2024, and the Trump administration later ended the payment pause, resulting in interest charges for SAVE borrowers. As a result of these changes, nearly eight million Americans with student loans will face higher repayment costs and reduced repayment options. The Trump administration has introduced new plans, including a revised 10-year standard repayment plan and the Repayment Assistance Plan (RAP), which ties payments to income. These changes are part of an overhaul of the federal student loan system, which aims to simplify repayment and reduce costs to taxpayers.
| Characteristics | Values |
|---|---|
| Status of the SAVE Plan | Blocked by the courts in 2024, phased out in 2025 |
| Number of borrowers enrolled in the SAVE Plan | 7.7 million |
| New repayment plans | Two new plans: a revised 10-year standard repayment plan and a new Repayment Assistance Plan (RAP) |
| Changes to repayment options | Reduced from seven plans to two new plans |
| Changes to loan limits | Capped at $20,000 a year and, in aggregate, at $65,000 per child for parent PLUS loans |
| New minimum payment | $10 minimum payment under the RAP plan |
| Interest charges | Restarting for SAVE Plan borrowers by August 1, 2025 |
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What You'll Learn
The Biden-era SAVE plan
The Biden-era Saving on a Valuable Education (SAVE) Plan was announced by the Biden Administration in June 2024. The plan was an attempt to implement a student loan bailout, which would see nearly eight million borrowers benefit from a zero per cent interest rate.
The SAVE plan was deemed unlawful by the Eighth Circuit Court of Appeals in February 2025. The court's ruling meant that the Department of Education could no longer offer borrowers a zero per cent interest rate. The SAVE plan was also found to be unlawful by federal courts, as it was deemed that the plan was an attempt to force taxpayers to pay for borrowers' loans.
The Department of Education has urged borrowers in the SAVE plan to transition to a legally compliant repayment plan, such as the Income-Based Repayment Plan. The Income-Based Repayment Plan will be available to borrowers until the Department can launch the One Big Beautiful Bill's Repayment Assistance Plan.
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Trump's One Big Beautiful Bill Act
On July 4, 2025, President Trump signed the One Big Beautiful Bill Act into law. This bill includes a new income-based repayment assistance plan for student loan borrowers, which will be available from July 1, 2026. The Act also includes spending cuts and tax breaks, including a new deduction for retirees, a 'baby bonus' for newborns, and a tax fix for small businesses.
The new income-based repayment plan will be available to borrowers by July 1, 2026, and is expected to restrict enrollment in existing PAYE and ICR plans. The Department of Education urges borrowers in the SAVE Plan to consider enrolling in the Income-Based Repayment Plan authorized under the Higher Education Act. This is because the SAVE Plan will result in loan balances growing when interest starts accruing, and borrowers will be responsible for making monthly payments that include accrued interest and principal amounts.
The One Big Beautiful Bill Act also includes a new deduction for individuals aged 65 and older, who will be able to claim an additional $6,000 deduction on top of the existing senior deduction. For married couples where both spouses qualify, this amounts to a $12,000 tax break.
Additionally, the Act includes a one-time deposit of $1,000 from the federal government for every baby born in 2025, 2026, and 2027, called the 'baby bonus'.
The bill also includes a tax fix for small businesses, allowing them to fully and permanently expense investments in research and development. This is expected to boost the tech and innovation economy, particularly in Kansas City.
Overall, the One Big Beautiful Bill Act is expected to provide historic tax relief, strengthen public programs, improve border security, and increase military investments.
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Income-Driven Repayment (IDR) plans
The US Department of Education has opened revised Income-Driven Repayment (IDR) plans and loan consolidation applications for borrowers. The online IDR application was temporarily paused to comply with the 8th Circuit Court of Appeals injunction issued in February 2023, which directed the Department to cease implementation of the Biden Administration's Saving on a Valuable Education (SAVE) Plan and parts of other IDR plans.
The updated IDR application allows borrowers to apply for the Income-Based Repayment (IBR), Pay As You Earn (PAYE), and Income-Contingent Repayment (ICR) Plans. Borrowers may also apply to consolidate their loans through a revised application form. The Department of Education encourages borrowers with loans in the SAVE Plan to use the Loan Simulator to estimate monthly payments under available repayment plans, determine repayment eligibility, and identify which option best meets their repayment goals.
The SAVE Plan was opened by the Biden administration in August 2023 after a 42-month pandemic-related pause on student loan payments. However, the SAVE Plan was deemed illegal by federal courts, and the 8th Circuit Court of Appeals issued an injunction in February 2023, preventing its implementation. As a result, borrowers in the SAVE Plan will need to transition to a legal repayment plan. The Trump Administration has urged SAVE borrowers to consider enrolling in the Income-Based Repayment Plan authorized under the Higher Education Act.
The Department of Education will provide direct outreach to borrowers enrolled in the SAVE Plan, instructing them on how to transition to a legal repayment plan. The new repayment plans are expected to provide borrowers with a sense of their options, although they may not resolve issues related to late payments and credit scores. The Income-Driven Repayment (IDR) plans offer a way for borrowers to access more affordable repayment options and get on a sustainable financial path.
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Loan forgiveness
The Coronavirus pandemic has had a significant impact on the finances of student loan borrowers. While the CARES Act provided some benefits for student loan borrowers, including a pause on federal student loan payments until September 30, 2020, it did not include any direct student loan forgiveness. However, there is a “secret” way to receive student loan forgiveness under the CARES Act for borrowers pursuing public service loan forgiveness. By pausing their federal student loan payments, borrowers can save money and effectively receive loan forgiveness since they may not make 120 payments.
During his campaign, President Joe Biden mentioned his support for direct forgiveness of at least $10,000 per borrower, but this was notably absent from his Coronavirus relief proposal. Biden has, however, extended the federal student loan administrative forbearance period, the pause in interest accrual, and the suspension of collections activity. While there is still uncertainty about whether student loan forgiveness during the pandemic will be accessible or taxable, Biden has expressed his opposition to taxing forgiveness in Income-Driven plans.
The SAVE Plan, introduced by the Biden administration in August 2023, offered a repayment option for nearly eight million borrowers. However, the plan is set to be extinguished, and borrowers will need to transition to alternative repayment plans. The Trump Administration has encouraged SAVE Plan borrowers to switch to an alternative Income-Driven Repayment (IDR) plan, such as the Income-Based Repayment Plan authorized under the Higher Education Act.
While student loan borrowers face challenges, there are options available for relief. The Public Service Loan Forgiveness Program and Income-Driven Repayment plans offer pathways to loan forgiveness. Additionally, borrowers can utilize forbearance options to temporarily pause payments during financial difficulties. It is important for borrowers to stay informed about repayment plans and seek alternatives to manage their student loan debt effectively.
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Interest accrual
The US Department of Education announced that it would restart interest accrual on student loans for borrowers enrolled in the Saving on a Valuable Education (SAVE) Plan on 1 August 2025. This decision was made to comply with a federal court injunction that blocked the implementation of the SAVE Plan, which included the Department's action of placing borrowers in a zero percent interest rate status.
The SAVE Plan, introduced during the Biden administration, was a generous repayment plan that lowered monthly payments and made it easier to qualify for forgiveness. It was ruled unlawful by the Eighth Circuit Court of Appeals in February 2025, and a federal district court injunction in April 2025 mandated the Department to begin charging interest on impacted loans. As a result, borrowers in the SAVE Plan will see their loan balances grow when interest starts accruing on 1 August 2025. They will be responsible for making monthly payments that include accrued interest and their principal amounts.
Borrowers in the SAVE Plan have a few options to consider. They can switch to an alternative Income-Driven Repayment (IDR) plan, such as the Income-Based Repayment, Pay As You Earn (PAYE), or Income-Contingent Repayment (ICR) Plan. The Department of Education encourages borrowers to use the Loan Simulator to estimate monthly payments and determine the best repayment plan for their goals. Additionally, the One Big Beautiful Bill Act, signed into law by President Trump, includes a new income-based Repayment Assistance Plan that will be available from July 1, 2026.
It is important to note that interest will not be assessed retroactively, and borrowers who can continue making payments are encouraged to do so to save on interest payments.
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Frequently asked questions
The SAVE (Saving on a Valuable Education) Plan was an income-based repayment proposal introduced by former President Biden in 2023. It capped payments at 5% of discretionary income for undergraduates and 10% for graduate loans. The plan was blocked by the courts in 2024 and has been phased out and replaced by President Trump's One Big Beautiful Bill Act.
The Biden administration opened the SAVE plan in August 2023, which put borrowers in an indefinite period of forbearance, meaning they were not required to make payments. However, the Trump administration ended this forbearance period, and interest charges for SAVE borrowers will kick in from August 1, 2025.
The One Big Beautiful Bill Act includes two new repayment plans: a revised 10-year standard repayment plan and a new Repayment Assistance Plan (RAP). The new plans will not be ready until July 2026, and it is unclear if borrowers will be required to make payments before then.
The Department of Education encourages borrowers to use the Loan Simulator to estimate monthly payments under available repayment plans and determine which option best meets their goals. Borrowers can also seek guidance from the Education Department, which is expected to provide further updates on the new plans.
