The U.S. Department of Education announced Tuesday that it had reached a proposed settlement agreement to end a popular, yet controversial Biden-era student loan repayment plan.
The Saving on a Valuable Education plan, better known as SAVE, was the most flexible and generous of all income-driven repayment plans, promising expedited loan forgiveness and monthly payments as low as $0 for low-income borrowers. Republican state attorneys general, led by Missouri, sued the Biden administration, arguing in court that SAVE was too generous.
The legal challenges put all SAVE borrowers in limbo for months, during which they were not required to make payments on their loans – even after many had already spent years in a pandemic payment pause. Interest resumed accruing on SAVE loans in August.
“The law is clear: if you take out a loan, you must pay it back,” Under Secretary of Education Nicholas Kent said in a statement announcing the proposed agreement. “Thanks to the State of Missouri and other states fighting against this egregious federal overreach, American taxpayers can now rest assured they will no longer be forced to serve as collateral for illegal and irresponsible student loan policies.”
Tuesday’s agreement, pending court approval, would end the long legal battle over SAVE by ending SAVE itself. The Education Department would commit not to enroll more borrowers in SAVE, to deny all pending SAVE applications and to move the roughly 7 million borrowers still enrolled in SAVE into other repayment plans – though some of those plans are also in flux.
The department also said student loan borrowers would have “a limited time to select a new, legal repayment plan.” Borrowers will have to choose between two types of plans: 1.) fixed payment plans or 2.) plans with payments based on a borrower’s income.
The two new plans created by Republicans’ One Big Beautiful Bill Act (OBBBA) will roll out in July 2026, and will include a revised standard plan and a new income-driven plan called the Repayment Assistance Plan. Though SAVE borrowers will be expected to change plans before then.
The SAVE plan’s days were already numbered. Under the OBBBA, borrowers would have had to change plans by July 1, 2028. Tuesday’s news would move that deadline up, though the administration has not provided a timeframe for the changes.
If the proposal is approved by the court, transitioning millions of borrowers to other plans will be a Herculean feat for loan servicing companies that handle day-to-day loan operations.
“It’s gonna be bumpy,” says Scott Buchanan, head of the Student Loan Servicing Alliance. “Remember, SAVE borrowers have not been in repayment for years. They’re gonna have a ton of questions and will need a ton of hand-holding to get back into repayment.”
The settlement arrives as millions of borrowers are struggling to keep up with their payments.
“We are sitting on the precipice of millions of borrowers defaulting on their loans,” says Persis Yu, of Protect Borrowers. “And instead of choosing to defend a plan that would have been affordable for these borrowers, this Department of Education has capitulated to the AGs and is going to make life much more expensive.”
The American Enterprise Institute, AEI, recently published an analysis of the latest federal student loan data: In addition to the 5.5 million borrowers who are currently in default, another 3.7 million are more than 270 days late on their payments and on the edge of default. Another 2.7 million borrowers are in the earlier stages of delinquency. In all, some 12 million borrowers are worryingly behind.
