The U.S. Department of Education announced a proposed settlement on Tuesday aimed at winding down the Saving on a Valuable Education (SAVE) plan, which has been a topic of contention during the Biden administration. This income-driven repayment plan was noted for its flexibility and accommodation, allowing some low-income borrowers to make payments as low as $0 and promising expedited loan forgiveness. However, the plan faced legal challenges spearheaded by Missouri’s Republican state attorneys general, who argued it was overly generous.
As a result of lawsuits, borrowers enrolled in SAVE have been in limbo, suspended from making payments even as interest on their loans resumed accruing in August. Under Secretary of Education Nicholas Kent emphasized the legal obligation of borrowers to repay their loans and criticized the federal policies associated with SAVE, attributing the settlement to the legal push from several states aimed at ending what they considered federal overreach.
The proposed agreement, which awaits court approval, would conclude the SAVE plan and transition about 7 million borrowers into new repayment options. The Department of Education’s decision to halt the enrollment of new borrowers in SAVE and deny pending applications means that those affected will need to select from either fixed payment plans or income-driven repayment options in the near future. This change is set against the backdrop of the One Big Beautiful Bill Act (OBBBA), which anticipates the rollout of new repayment plans by July 2026.
This shift is expected to pose significant challenges for loan servicing companies, which will need to assist a substantial number of borrowers returning to repayment after a prolonged hiatus. Scott Buchanan, head of the Student Loan Servicing Alliance, acknowledged the complex nature of this transition and the potential difficulties borrowers may face as they re-engage with their loan obligations.
As the settlement unfolds, advocates fear it could exacerbate the challenges for millions of borrowers already struggling with their payments. According to a recent analysis by the American Enterprise Institute, around 12 million borrowers are currently behind on their loans, with alarming numbers of them at risk of defaulting.
The development serves as a reminder of the ongoing complexities and pressures within the student loan system, raising concerns about the financial stability and well-being of a large segment of the borrowing population. The hope remains that the new repayment options will provide necessary support to borrowers as they navigate these changes.