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Interest will restart for 8 million student loan borrowers after year-long pause

The Department of Education announced Wednesday it will restart interest for nearly 8 million student loan borrowers on the SAVE plan starting August 1.

That leaves borrowers with just three weeks to weigh their options and switch to a new plan.

Payments and interest on the Biden-era plan have been on pause since last summer. The hold on payments will remain in place for now.

President Trump shows his signature on the “big, beautiful” bill on July 4 at the White House. POOL/AFP via Getty Images

The plan has been halted by legal challenges from two groups of red states, which last year argued the Biden administration had overreached its authority to approve the costly loan repayment plan.

The Department of Education said it was axing the “illegal” SAVE plan because it “lacks the authority to put borrowers into a zero percent interest rate status.”

“Since Day 1 of the Trump administration, we’ve focused on strengthening the student loan portfolio and simplifying repayment to better serve borrowers,” Education Secretary Linda McMahon said in a statement

“As part of this effort, the department urges all borrowers in the SAVE plan to quickly transition to a legally compliant repayment plan.”

The department did not respond to inquiries about why the change needs to be made by an August 1 deadline.

President Trump last week signed into law his “big, beautiful” spending and tax bill, which will drastically alter the student loan repayment options available to borrowers.

The most critical change is the end of the Saving on a Valuable Education plan, or SAVE, which is used by millions of middle- and low-income Americans. It calculates borrowers’ monthly payments as a percentage of their discretionary income.

President Trump’s “big, beautiful” bill will drastically alter the student loan payment plans available to borrowers. REUTERS

The Trump-backed Repayment Assistance Plan, or RAP, will take its place, and is expected to cost many borrowers hundreds of dollars more each month.

The GOP bill will also eradicate Pay as You Earn, known as PAYE, and Income Contingent Repayment, or ICR, by June 30, 2028.

The Education Department said it will start reaching out to SAVE enrollees on Thursday with instructions on how to switch plans and advice on using the federal government’s loan-simulator tool to calculate which plan is best for them.

It’s encouraging SAVE enrollees to consider the Income-Based Repayment plan, which will remain open to existing borrowers as long as they don’t take out new loans or consolidate after July 1, 2026.

Education Secretary Linda McMahon does a television interview at the White House in April. AP

This plan requires borrowers to pay 10% of their discretionary income toward their loans for 20 years and forgives any remaining balance. Borrowers with loans taken out before July 1, 2014 pay a higher 15% payment.

Some borrowers, however, might not be able to afford these payments. It’s important to keep their accounts in good standing, so they should work with a lender on forbearances or deferments, Erica Sandberg, consumer finance expert at BadCredit.org, previously told The Post.

Borrowers can remain on the SAVE plan for now. While payments are still paused, interest will start to pile up.

Enrollment with new plans may not be immediately processed as servicers are facing a massive backlog of 1.5 million applications, according to The New York Times.

Borrowers who previously applied for the IBR, PAYE or ICR plans do not need to reapply, according to the Education Department. The latter two plans will, however, be phased out in 2028.



This story originally appeared on NYPost

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