Student loan borrowers in SAVE plans in the U.S. must soon make payments, after two years of limbo

The U.S. Department of Education building is seen in Washington, Dec. 3, 2024. (AP Photo/Jose Luis Magana, File)

WASHINGTON — More than 7 million student loan borrowers who have been enrolled in a former U.S. President Biden-era repayment plan will receive notices beginning Friday with instructions to seek a new plan to repay their debt, the U.S. Education Department said.

Borrowers enrolled in the SAVE plan, which was struck down by a federal court earlier this month, have been in forbearance since July 2024 as a legal battle played out in courts. Starting July 1, loan servicers will begin issuing notices giving borrowers 90 days to select a new repayment plan.

The available repayment plans will mean higher monthly payments for most of those borrowers.

When Alexis Arredondo graduated from the University of California, Los Angeles, in 2024 with a degree in microbiology, he struggled to find full-time work in research or public health. Instead, he began working part-time and freelancing for nonprofits in Southern California.

A first-generation college student, he took on roughly US$40,000 in student debt and enrolled in the SAVE plan upon graduation. Now, he said, he has to choose between paying more per month, which would be a struggle to afford, or a longer repayment period, which would increase how much he pays in interest.

“It’s very difficult knowing where I’m going to be to able to get this money from,” he said.

The SAVE plan was among several initiatives launched by President Joe Biden, a Democrat, to reduce Americans’ student debt burden.

Under President Donald Trump, a Republican, “The days of unlawful loan forgiveness are behind us,” Under Secretary of Education Nicholas Kent said.

“Let me be clear, the Trump administration’s perspective is that when a student takes out a loan, they are responsible for repaying it,” Kent told The Associated Press.

The SAVE plan provided more lenient terms than other repayment plans, reducing loan payments to as little as 5 per cent of a borrower’s discretionary income and offering forgiveness for borrowers who made payments for at least 10 years and originally borrowed US$12,000 or less.

While the court challenges played out, borrowers enrolled in the plan have not been required to make payments. But debt balances began accruing interest following a court ruling last summer that blocked implementation of the SAVE plan, meaning some students will see increases in the amount they owe.

Borrowers have felt whiplash as the challenges to the SAVE plan worked their way through court, said Mike Pierce, executive director of the Student Borrower Protection Center.

“Over and over again, education officials of both parties made promises about fixing the broken student loan system and called student debt a crisis,” he said. “And yet today, these same borrowers are being told it’s time to pay and you have no good options.”

The most forgiving income-based repayment plan now is calculated off at least 10 per cent of an individual’s discretionary income.

Last year, the Trump administration and Congress made several changes to student loan repayment options that will take effect over the next two years. For one, new student loans will no longer have the option of deferment because of unemployment or economic hardship.

“You’re talking about a pressing current affordability crisis, and you took away the most affordable plan option,” said Alexander Lundrigan, policy and advocacy manager at Young Invincibles, an advocacy group.

Earlier this month, the U.S. Court of Appeals for the 8th Circuit struck down the SAVE plan. The Education Department’s notices to borrowers beginning Friday will direct them to enroll in a plan and resume making payments as soon as this summer.

Borrowers will be contacted by their loan servicers in stages, with a new group receiving word every two weeks. Those who had been enrolled in the SAVE plan the longest will be the first to receive notices.

Annie Ma, The Associated Press