A Biden-era student loan payment plan was struck down as illegal by a federal court earlier.
The U.S. Department of Education announced it will restart interest accrual for student-loan borrowers in the Saving on a Valuable Education (SAVE) plan, starting from Aug. 1, according to a July 9 Education Department statement.
Launched in 2023 by the Biden administration, the SAVE plan calculated student loan payments based on the individual’s income and family size. The plan prevents interest from getting accrued, brings loan payments for those who earn less than $32,800 annually down to zero per month, while providing early forgiveness for low-balance borrowers.
In June 2024, a federal court blocked parts of the SAVE plan. As a result, student loan borrowers enrolled in the plan had their loans put in forbearance with a zero percent interest rate. The SAVE plan was struck down as unlawful by the Eighth Circuit Court of Appeals in February.
In April, a federal court issued an injunction to implement the decision made by the appeals court. The latest action by the department was taken in order to comply with the court injunction.
The department will start charging interest from Aug. 1. The interest will not be assessed retroactively, the department said.
Interest will begin accruing from Aug. 1, when borrowers under the SAVE plan will see their loan balances grow. And when the SAVE forbearance period ends, borrowers will have to start making repayments on their loans, including the accrued interest, according to the department.
Starting July 10, the department will begin direct outreach to 7.7 million borrowers enrolled in the SAVE plan, providing instruction on how to move to a legal repayment plan.
“For years, the Biden administration used so-called ‘loan forgiveness’ promises to win votes, but federal courts repeatedly ruled that those actions were unlawful,” Secretary of Education Linda McMahon said. “Congress designed these programs to ensure that borrowers repay their loans, yet the Biden administration tried to illegally force taxpayers to foot the bill instead.”
“Since day one of the Trump Administration, we’ve focused on strengthening the student loan portfolio and simplifying repayment to better serve borrowers.
“As part of this effort, the Department urges all borrowers in the SAVE Plan to quickly transition to a legally compliant repayment plan–such as the Income-Based Repayment Plan. Borrowers in SAVE cannot access important loan benefits and cannot make progress toward loan discharge programs authorized by Congress.”
