WASHINGTON (States Newsroom) — The U.S. Education Department announced Wednesday that interest accrual on the debt of about 7.7 million student loan borrowers who are participating in the Saving on a Valuable Education plan would restart on August 1.
Beginning in 2024, a number of GOP-led states filed lawsuits against the Biden-era income-driven repayment scheme, or SAVE, leaving debtors in a state of uncertainty. During that time, they were placed in an interest-free forbearance.
In 2023, the SAVE plan was developed with the intention of lowering monthly loan payments for borrowers and forgiving any outstanding debt after a predetermined amount of time.
An injunction from a lower court that prevented the SAVE plan from taking effect was affirmed by a federal appeals court in February. In order to comply with court rulings, the department announced on Wednesday that it is directing its federal student loan servicers to begin charging interest on August 1.
According to a written notice from the department, debtors will be obligated to make monthly payments that cover both their principle and any interest that has accumulated once the SAVE plan deferment expires.
In a statement released with the announcement, Education Secretary Linda McMahon noted that the Biden Administration had been using so-called loan forgiveness pledges to garner votes for years, but federal judges had consistently declared that such practices were illegal.
She noted that although Congress created these programs to make sure borrowers paid back their loans, the Biden Administration attempted to improperly have taxpayers pay for them instead.
According to McMahon, her department is advising SAVE plan borrowers to switch to a legally compliant repayment plan as soon as possible.
According to her, borrowers in SAVE are unable to proceed toward loan discharge programs approved by Congress and obtain significant financial advantages.
Unnecessary interest charges
In a statement released on Wednesday, Student Borrower Protection Center executive director Mike Pierce criticized the department’s choice.
“Secretary McMahon is choosing to drown millions of people in needless interest charges and blaming unrelated court cases for her own mismanagement,” he stated, rather than addressing the flawed student loan system.
We hear from borrowers every day who have been waiting for hours on end with their servicer, pleading with the government to lift them out of this forbearance and assist them in getting back on track. Instead, McMahon is increasing the cost of their student loans without providing them with a solution.
As he and his administration seek to destroy the department, the agency has come under fire for its broad initiatives in the months since President Donald Trump entered office.
In addition, the department is facing legal challenges over some of its biggest initiatives to date, such as the layoff of over 1,300 workers earlier this year as part of a force reduction effort, an executive order requesting that McMahon assist in closing her own agency, and Trump’s plan to transfer some services to other federal agencies. The court has temporarily suspended these actions.
Last week, President Donald Trump signed a large tax and budget cut measure into law, which requires any borrower under the SAVE plan to either automatically enroll in a new, income-based repayment plan or opt in to a different repayment plan by July 1, 2028.
