Student Loan Interest Resumes for Millions as SAVE Plan Faces Legal Scrutiny

Federal Student Loan Interest Restarts for SAVE Plan Borrowers in August 2025

Washington, D.C. — Millions of Americans enrolled in the federal Saving on a Valuable Education (SAVE) plan are witnessing a significant shift in their student loan journey as the U.S. Department of Education resumes interest charges on their federal student loans as of August 1, 2025. This development ends a year-long forbearance period, raising immediate financial concerns for borrowers even as legal battles over the SAVE plan continue to unfold.

The Road to August 2025: How Forbearance Came to an End

The SAVE plan, implemented by the Biden administration in 2023, was intended as an income-driven repayment (IDR) option that significantly reduced many borrowers’ monthly payments and eliminated interest accumulation for many by setting interest rates to zero when payments fell short. However, legal challenges from several states led to federal court injunctions, halting key benefits of the plan and triggering a nationwide forbearance that suspended interest accrual altogether starting June 2024.

The Department of Education’s decision to end the zero percent interest forbearance on August 1, 2025, follows several court rulings declaring core components of the SAVE plan unlawful. About 7.7 to 8 million borrowers have been directly impacted, most of whom saw their loan balances frozen for more than a year. With payments paused, their debts did not grow, providing brief but much-needed financial relief.

What the Interest Resumption Means for Borrowers

With the end of forbearance, interest will accrue again, and borrowers’ total loan balances will begin to increase, even as required payments remain temporarily suspended until legal matters are resolved or loan servicers are able to bill correctly. Financial advocacy groups estimate that the average borrower could see their loan balance grow by approximately $300 per month in new interest charges alone.

For many, this sudden turn means they must quickly re-evaluate their repayment strategies or face the prospect of owing much more in the long run. Delinquency rates are already a concern: the Federal Reserve Bank of New York reported that nearly 14% of borrowers (about six million people) were 90 or more days delinquent or in default by the first quarter of 2025, prior to the end of forbearance. More than 2.2 million borrowers have experienced drops in their credit scores significant enough to limit access to other forms of credit.

Legal and Administrative Turbulence: The Fate of the SAVE Plan

Two central legal cases have put the SAVE plan’s future in doubt. A federal appellate decision in February 2025 ended the plan’s interest cancellation and delayed forgiveness processing for those in the Income-Based Repayment (IBR) plan, causing confusion and anxiety among borrowers hoping for long-term relief.

The Department of Education has responded by urging SAVE plan participants to consider switching to other available income-driven repayment options, such as IBR. Borrowers must make this transition by July 2028 to remain eligible, although the agency asserts that the processing of applications can be expedited if borrowers allow direct IRS access to their tax information. The Education Department has communicated that direct outreach will continue, offering guidance for selecting new repayment plans and detailing the next steps as the SAVE program undergoes judicial and administrative review.

Historic Shifts in Student Loan Policy

The current moment sits atop over a decade of shifting federal student loan policy. The SAVE plan represented the most borrower-friendly IDR framework to date, raising the income exemption threshold to 225% of the poverty line—making payments lower for the vast majority of enrollees. Prior to this, other IDR options, like Revised Pay as You Earn (REPAYE) and IBR, offered debt relief after 20 or 25 years but maintained higher minimum payments and did not shield borrowers from accumulating interest in the same way.

Recent legislation has further altered the landscape. The newly enacted One Big Beautiful Bill Act, signed by President Trump, institutes tighter borrowing limits and a new Repayment Assistance Plan (RAP) that extends forgiveness timelines to 30 years, which is notably less advantageous than current IBR options for many borrowers. As of now, only borrowers with loans originating before July 2026 can access the IBR plan’s 20- or 25-year forgiveness structures as legal disputes over SAVE, and its associated forgiveness processing, continue.

Comparing the U.S. Outlook With Regional and Global Trends

The U.S. is not alone in grappling with student debt policy. Countries like the United Kingdom and Australia also offer income-driven repayment plans, with varying degrees of interest protection and forgiveness timelines. The UK, for example, adjusts payments to a borrower’s income and typically wipes out remaining debt after 30 or 40 years. However, recent debates in both countries about affordability and rising default rates echo the challenges faced in the United States, suggesting a broader, global struggle with the costs and consequences of higher education financing.

Within the U.S., economic impacts are particularly pronounced among recent graduates and low-to-middle income families. Many face mounting difficulties meeting living expenses or qualifying for mortgages as student debt and delinquency rise. The resumption of interest is widely expected to exacerbate these pressures, as monthly balances swell and the credit standing of millions takes further hits.

Economic Impact and Borrower Reaction

The resumption of interest has immediate and ripple effects. Those already struggling face compounding debt, while high delinquency rates risk further impairing financial mobility for millions. Because student loans cannot easily be discharged in bankruptcy, borrowers often find themselves locked into years, if not decades, of repayment.

With loan balances increasing before mandatory payments even resume, public anxiety is mounting. Advocacy organizations warn of increased financial distress unless meaningful reform or broad-based relief is enacted soon. Borrowers, meanwhile, express frustration and uncertainty about their long-term options, complicating personal planning for homeownership, family, and retirement.

Navigating the Transition: Federal and Private Loan Options

As legal and administrative changes take effect, federal agencies and advocacy groups are advising borrowers to:

• Carefully compare available federal repayment options using loan simulators and official resources.
• Prioritize federal aid, including grants and scholarships, wherever possible, as these do not require repayment.
• Exercise caution with private student loans, which typically carry higher interest rates and fewer borrower protections.
• Leverage comparison platforms such as Credible and Sparrow to evaluate competitive private loan rates, focusing on reputable lenders like SoFi, Ascent, and Earnest.

Experts stress that, when possible, federal repayment options are preferable over private loans because of their income-driven protections and potential for future forgiveness—even as policy details remain unsettled.

What Comes Next

Looking ahead, the future of the SAVE plan and broader student loan reform remains uncertain as litigation and legislative negotiations continue. For millions of borrowers, the immediate reality is that interest—and thus overall debt—will once again rise, even as payment obligations are in limbo.

Department of Education outreach efforts are ramping up to assist and inform affected borrowers, but the urgency of individual planning has never been greater. As the landscape continues to shift, financial literacy and timely decision-making may prove as crucial for student loan borrowers as policy itself, impacting not just personal finances but the broader U.S. economy in an era of unprecedented higher education debt.