US DOE: SAVE Plan Loan Interest Repayment Resumes August 1

Interest accrual for the Saving on a Valuable Education Plan, an income-driven student loan debt relief program used by 7.7 million borrowers, will restart on August 1, according to a July 9 statement from the U.S. Department of Education.

In July 2024, the U.S. 8th Circuit Court of Appeals issued an injunction on the implementation of SAVE, leading the administration of former President Joe Biden to place plan participants’ loans in forbearance, with a 0% interest rate, pending a final ruling. In February, the 8th Circuit issued a decision ending SAVE, which included benefits such as $0 monthly payments for eligible borrowers and a 100% elimination of interest on both subsidized and unsubsidized loans after a borrower made a scheduled payment.

The plan provided the lowest monthly payment amount of any income-driven repayment plan available to most borrowers, as it increased the income exemption from 150% of the poverty line—the amount specified by its predecessor plan, Revised Pay as You Earn—to 225%.

With the appeals court decision to end the program, interest accruals must resume, and SAVE borrowers desiring an income-driven payment solution need to look to other programs.

The DOE’s Rationale

“The department had the authority under the SAVE plan to prevent borrowers from going into negative amortization, which is the authority the department relied on to put borrowers in 0% interest rate status,” the DOE stated. “Outside of that regulatory provision in SAVE (which is enjoined), the department lacks the authority to put borrowers into a 0% interest rate status.”

The administration of President Donald Trump has stated that borrowers had enrolled in the SAVE plan based on a “false promise” of loan cancellation and zero monthly interest payments.

“For years, the Biden administration used so-called ‘loan forgiveness’ promises to win votes, but federal courts repeatedly ruled that those actions were unlawful,” said U.S. Secretary of Education Linda McMahon in a statement. “Congress designed these programs to ensure that borrowers repay their loans, yet the Biden administration tried to illegally force taxpayers to foot the bill instead.”

The DOE recommended that borrowers with loans in the SAVE program use the department’s Loan Simulator tool to evaluate their repayment options. Those looking to discharge their loan obligations, such as through the Public Service Loan Forgiveness Program, must switch out of the SAVE program and into an alternative IDR plan to begin making qualified payments. Borrowers who previously submitted an IDR application and selected the Income-Based Repayment, Pay As You Earn or Income-Contingent Repayment Plan options do not need to submit new applications.

According to the statement, the DOE was set to begin contacting borrowers enrolled in the SAVE plan on July 10, providing them with instructions on how to move to a legal repayment plan.

The DOE resumed student loan collections on May 5, ending a five-year pause that began at the onset of the COVID-19 pandemic in March 2020. As of late June, the DOE received nearly $282 million in collections on defaulted federal student loans through voluntary payments and the Treasury Offset program administered by the U.S. Department of the Treasury, according to its statement.

Financial Stress Ticks Up

“When federal loan cancellation and interest rate cuts come to an end, it could serve as a wake-up call for employers to take a closer look at the financial stress their employees are facing,” said Rob Austin, vice president of value engineering at Alight Solutions, in an emailed statement. “Our research shows that nearly 70% of individuals are already feeling stressed about their finances, and student loan debt is a major contributor to that stress.”

Alight’s 2024 Alight International Workforce and Wellbeing Mindset Study revealed that more than half of employees surveyed said finances “control their life,” and 47% said they are financially just getting by. Fewer than half of respondents reported a positive state of well-being, and a majority reported experiencing moderate-to-severe stress.

“Almost three-quarters of workers with student loans are looking for help from their employers to reduce their debt burden or get a better interest rate. But right now, very few employers are offering that support,” Austin continued in his statement. “It’s a big gap that can have real consequences for people’s financial well-being and stress levels, and this can be a way for employers to differentiate themselves from the competition and help attract and retain top talent.”

Bennett Hadley, corporate market financial security solution leader at employee benefits and human resource consulting firm Segal, says ballooning student loan balances can be devastating for SAVE participants, in particular.

“Being in the SAVE program [income bracket probably] means traditional loan payments are difficult,” says Hadley. “If they’re losing protection [from] their balance going up, … they’re going to need to take action to switch plans and come up with a new strategy for how they’re going to deal with their loans.”

Hadley says employers—especially those that employ recent college graduates or whose workforces are comprised largely of post-secondary-degree earners—should be communicating with their employees about their loan options.

Student loan debt “could have a knock-out effect on retirement contributions,” Hadley says. “It happens a lot when people have shocks. … I think those people are thinking about, ‘I have to get by today—I can’t afford to save.’”

According to Charles Schwab’s “2025 Workplace Survey 401(k) Plan Participants” report, workers face several challenges in the way of saving for a comfortable retirement. The effect of loan repayment upon retirement savings was cited as an obstacle for a smaller number of respondents than for other challenges, however.

“Inflation was the most top of mind (57%), but keeping up with monthly expenses (38%), stock market volatility (33%) and unexpected expenses like home repairs (32%) are also challenges,” said Marci Stewart, director of client experience at Schwab Workplace Financial Services, in an emailed statement. “In a bright spot, paying off student loans is only a retirement savings obstacle for about 9% of the participants we surveyed.”