Save Plan student loans to accrue interest starting August 1

Save Plan student loans to accrue interest starting August 1

Starting August 1, 2025, approximately 8 million borrowers whose student loans have been in forbearance for about a year will begin to see those loans accrue interest, according to recent plans from the Education Department [1]. This shift follows a February injunction that reiterated the block on the SAVE program, which had capped interest accrual and offered forgiveness after 10 years of payment in some cases. The injunction, which was challenged by Republican-led states, has led to the resumption of interest accrual on loans enrolled in the SAVE program.

The SAVE program, which paused interest accrual and offered forgiveness for borrowers, had been under a court injunction since 2024. The injunction had halted the administration from processing forgiveness for borrowers enrolled in PAYE and ICR plans, as well as the accrual of interest on loans. Now, with the injunction in place, borrowers will be responsible for paying accrued interest and principal once the lawsuit is resolved.

The Education Department has encouraged borrowers to switch to a different income-driven repayment plan to expedite the discharge of their loans. However, a backlog of approximately 1.6 million IDR applications may delay this process. The agency has not yet provided a comment on the plans.

The new repayment plans, as outlined in the Republican-led "One Big Beautiful Bill," will significantly impact future borrowers. Existing borrowers may retain access to the Income-Based Repayment plan, but anyone who borrows after July 2026 will be subject to the new rules, which include a standard repayment plan with a repayment window of 10 to 25 years and a Repayment Assistance Plan (RAP) with a repayment timeline of 30 years [2]. The RAP plan will adjust monthly payments to 1% to 10% of a borrower's adjusted gross income, with a minimum monthly payment of $10. This could make monthly payments more affordable but extend the repayment period, potentially leading to higher overall costs.

The new repayment plans and interest accrual changes underscore the ongoing debate over student loan policies and their impact on borrowers. As the Education Department and Congress continue to navigate these changes, borrowers should closely monitor their options and consider consulting with financial advisors to understand the implications of these new rules on their long-term financial goals.

References:
[1] https://www.reddit.com/r/StudentLoans/comments/1lvhxdq/interest_to_start_accruing_on_save_forbearance_in/
[2] https://www.cnet.com/personal-finance/loans/student-loan-repayment-plans-will-last-as-long-as-most-mortgages-how-much-the-new-budget-bill-will-cost-you/