Damircudic | E+ | Getty Images
Nearly 7 million federal student loan borrowers remain enrolled in a defunct Biden administration-era repayment plan, Nicholas Kent, a top official at the U.S. Department of Education, told CNBC on Thursday.
By staying in the Saving on A Valuable Education, or SAVE, plan, these borrowers’ debts are growing, and they’re not making progress toward student loan forgiveness, said Kent, the undersecretary of education at the agency.
“It’s a problem for borrowers,” he said. “They’re not recognizing the benefit of making their payments.”
In recent weeks, just around 300,000 student loan borrowers have left SAVE, Kent said. The millions of borrowers who’ve lingered in the plan are at risk of getting billed unaffordable payments once the plan disappears, or eventually falling into default.
Over 42 million Americans hold student loans, and the outstanding debt exceeds $1.6 trillion, according to the Congressional Research Service.
‘SAVE borrowers have to move’
The Biden administration introduced SAVE in 2023, billing it as “the most affordable repayment plan ever created.” Under the program, many borrowers expected their monthly bills to be cut in half. But Republican-led legal challenges quickly put the plan on ice.
Starting in July 2024, millions of student loan borrowers were placed in forbearance while the legal challenges played out, meaning they didn’t owe monthly payments. A federal appeals court finally ordered the end of SAVE earlier this year.
The Trump administration has allowed borrowers to remain in the payment pause until recently. Officials said in late March that SAVE enrollees will get roughly 90 days from July 1 to exit and select a new repayment option.
“SAVE borrowers have to move,” Kent told CNBC.
Borrowers to face different deadlines to exit SAVE
Student loan borrowers enrolled in SAVE will face different deadlines for exiting the program, Kent said.
Borrowers should expect a 90-day window during which they can enroll in a different plan after they receive notice from their student loan servicer, the Education Department previously said. But those announcements could come on different dates throughout the summer, Kent said — “we don’t want to overwhelm servicers.”
Those SAVE borrowers looking for an exit will likely join an already lengthy queue.
At the end of April, more than 530,000 federal student loan borrowers who had requested a new repayment plan were waiting in an application backlog, according to a recent court filing.
If borrowers don’t leave SAVE
Borrowers who remain in the SAVE payment pause will see their debt mushroom from interest, said higher education expert Mark Kantrowitz.
The typical SAVE enrollee has a loan balance of around $57,000 and a 6.7% interest rate, according to Kantrowitz’s calculations. That would mean their debt has already grown by over $2,500 since interest accrual resumed in August, he calculated.
Student loan borrowers in SAVE are also not making any progress toward debt forgiveness, under either the terms of their repayment plan or on Public Service Loan Forgiveness.
If borrowers stay in the plan beyond their deadline, the Education Department will move them into either the Standard Repayment Plan or the Tiered Standard Repayment Plan. Many borrowers will be unable to afford the fixed bills on those plans, said Kantrowitz.
“If they don’t make these payments, their loans will become delinquent and, after a year in delinquency, go into default,” he said.
There are tools available online to help you determine how much your monthly bill would be under different student loan repayment plans.
