Interest charges on student loans to resume for approximately 8 million debtors
In a move that has sparked controversy, the Trump administration has announced that the Student Aid for Valuable Education (SAVE) Plan will be replaced by two new student loan repayment plans, effective from August 1st. This decision comes as approximately 8 million student loan borrowers will see their interest charges restart next month.
The Repayment Assistance Plan (RAP) and the Standard Repayment Plan are the new options being offered. The RAP is an income-based plan that sets payments between 1% and 10% of a borrower's income, depending on their income level. It includes a minimum monthly payment of $10 and waives unpaid interest. Any remaining balance will be forgiven after 30 years.
On the other hand, the Standard Repayment Plan sets fixed payments over a period of 10 to 25 years, depending on the borrower's original loan balance. This approach is more traditional and varies based on the amount borrowed.
The announcement has been met with criticism from the Student Borrower Protection Center. Its Executive Director, Mike Pierce, has called the move a "betrayal," claiming that it will cost borrowers hundreds more every month. Pierce also stated that Secretary of Education Linda McMahon is choosing to drown millions of people in unnecessary interest charges.
The SAVE Plan, an Income Driven Repayment (IDR) program that calculates payment size based on income and family size, is currently on a forbearance period that postpones payments. The department urges SAVE borrowers to consider enrolling in the income-based repayment plan authorized under the Higher Education Act until the Repayment Assistance Plan is launched.
The changes are part of Trump's "Big Beautiful Bill," which eliminates existing income-driven repayment plans like the SAVE Plan, which was blocked in court. Borrowers currently enrolled in the SAVE Plan have until between July 2026 and July 2028 to transition to one of these new plans.
Secretary McMahon has stated that the Biden Administration misled borrowers regarding the constitutional authority to wipe debt away. She has also emphasized her efforts to simplify the repayment process, stating that taxpayers will no longer be responsible for the "irresponsible student loan policies" of the previous administration.
The Department of Education is complying with a federal court injunction that blocked the implementation of the SAVE Plan earlier this year. The return to interest charges was first reported by Bloomberg. The education department will initiate direct outreach to SAVE Plan borrowers with instructions on how to move to a legal repayment plan.
It is estimated that borrowers will pay an average of $3,500 in interest per year, amounting to $27 billion in total. Borrowers on the SAVE Plan could potentially enter into more debt as interest accrues in the coming weeks. The Student Borrower Protection Center focuses on eliminating the burden of debt for Americans.
As the August 1st deadline approaches, SAVE Plan borrowers are urged to carefully consider their options and make informed decisions about their student loan repayment plans.
- The Trump administration's decision to replace the Student Aid for Valuable Education (SAVE) Plan with the Repayment Assistance Plan (RAP) and Standard Repayment Plan has sparked criticism, particularly from the Student Borrower Protection Center, which has labeled it a "betrayal."
- The Repayment Assistance Plan and the Standard Repayment Plan are the two new student loan repayment options being offered, with the former being an income-based plan that sets payments between 1% and 10% of a borrower's income, and the latter setting fixed payments over a period of 10 to 25 years.
- In response to the criticism, Secretary of Education Linda McMahon has emphasized her efforts to simplify the repayment process and has stated that taxpayers will no longer be responsible for the "irresponsible student loan policies" of the previous administration.
- As the August 1st deadline approaches, SAVE Plan borrowers are urged to carefully consider their options and make informed decisions about their student loan repayment plans, as the return to interest charges could lead to borrowers potentially entering into more debt.
