The $1.6 trillion student loan market has been in a state of flux since the onset of the pandemic in 2020, with numerous payment pauses, interest waivers and failed forgiveness schemes. Many of the previous administration’s attempts to forgive loan balances have been halted by the courts, and most of the temporary deferments have ended or are ending soon.
The recently passed budget reconciliation bill also includes changes, of which borrowers should be aware. One program in particular, the Saving on a Valuable Education plan (Save) could cause loan balances to balloon if participants fail to act.
Former President Joe Biden made student debt forgiveness a central element of his 2020 campaign. This effort was destined to fail for two reasons. First, it was manifestly unfair to the millions of Americans who had dutifully repaid their own obligations and would establish a negative precedent for future students. Secondly, many of the former president’s assistance plans were struck down or delayed by federal courts as a usurpation of congressional authority.
One such attempt was the Save plan, which attracted 7.7 million borrowers with the promise of lower payments and partial loan reductions. While court challenges continue, participants in the plan have been allowed to hold off on making payments while interest accrual has been waived. That is now changing due to recent legislation.
The big bill that shall not be named, signed into law on July 4, includes major changes to the student aid infrastructure. It eliminates a farrago of prior income based alternatives with acronyms like SAVE, ICR, PAYE and REPAYE, and establishes two primary repayment plans slated to phase in between now and July 1, 2028.
The standard repayment plan looks much like any conventional loan, which amortizes the balance over 10 to 25 years, depending on the size of the loan.
The existing income-based repayment plan remains in effect with modifications for existing borrowers and for new loans taken out before July 1, 2026. Borrowers will be required to pay 10% of their monthly discretionary income, with any remaining balance forgiven after 20 years of timely payments. One new wrinkle is the elimination of proving hardship, but borrowers must recertify income each year. They may choose to allow the IRS to provide automatic annual verification.
A new Repayment Assistance Plan is scheduled to replace the current income-based plan for new borrowers after July 1, 2026. It features a sliding payment schedule from 1% to 10% of adjusted gross income with a $10 per month minimum payment. After that date, new borrowers must select this plan to retain eligibility for public service loan forgiveness.
It is important to note that not only is the Save plan ending sometime before mid-2028, but that current participants in the plan are now being charged monthly interest and should take immediate action to select a new option.
According to the New York Fed, nearly 11% of all outstanding student loan debt are more than 90 days past due. The increase in delinquencies hit a record level in the second quarter of 2025, just as the moratorium on reporting to the credit bureaus ended and late payment began showing up on FICO scores. Meanwhile, government past due collection efforts resumed in May, and the White House has indicated that the Department of Education will begin garnishing wages later this summer.
What to do if you are in the Save program. Although participants in the Saving on a Valuable Education plan may continue to defer payments until 2028 or the courts terminate the program, interest has begun accruing as of Aug. 1, and loan balances will rise sharply over time. For example, a typical student with the average loan balance of $39,000 could see interest charges of over $200 each month, adding roughly $8,000 to the total by the time the plan ends in 2028.
— Option 1: Pay interest only. At the very least, someone in the Save plan that intends to continue holding off principal repayment for the time being should make the monthly interest payments to avoid running up the balance.
— Option 2: Move into an income-based plan. While the number of options has been reduced, the existing income-based repayment plan remains in effect for now, with some modifications. Moving from Save into the income-based plan will allow you to reduce the loan balance and preserve any public service forgiveness options you may have. Once the new repayment assistance plan rolls out in July 2026, you can consider switching over.
— Option 3: Refinance. If you are not seeking income-based relief, you might consider refinancing with a private lender. This would likely be the least favorable choice, since you would forego any potential future hardship assistance or income-driven options in the future, but you may find more flexible repayment terms that better suit your situation.
Borrowers currently in Save should go to the loan simulator utility at StudentAid.gov to review and compare options.
It is imperative to act now to avoid a bad outcome in the future. Those who do nothing will default into one of the new repayment plans when Save ends, in addition to racking up potentially thousands more in interest. Reach out to your loan servicer to verify your contact information and loan terms and to discuss repayment options under the new law. The timing and exact configuration of the changes to loan options remain uncertain, and it is not clear whether the program will stay within the Department of Education or move to the Small Business Administration, as additional litigation continues.
Ultimately, it is the responsibility of the borrower to understand the rules and make appropriate arrangements to repay. Financial aid to education has generated a highly attractive rate of return in terms of American innovation since the Eisenhower administration, but taxpayers have the right to expect timely repayment.
Christopher A. Hopkins, CFA, is a co-founder of Apogee Wealth Partners in Chattanooga.
