Millions of student loan borrowers who believed they had a temporary break from interest are now seeing their balances grow again. Interest has resumed for people enrolled in the Saving on a Valuable Education (SAVE) Plan. This reversal stems from court rulings, policy disputes, and changes to repayment programs that could affect how borrowers manage their debt.
Below is a clear explanation of what happened and what it means for borrowers.
Why Interest Returned
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The SAVE Plan was introduced under the Biden administration to reduce monthly payments and prevent loan balances from growing due to interest. However, federal courts blocked core aspects of the plan, ruling that the Department of Education lacked the authority to keep borrowers at a zero percent interest rate indefinitely. As a result, the interest pause proved temporary.
Effective August 1, 2025, the Department of Education resumed charging interest to comply with a court injunction. Nearly 7.7 million borrowers who had been placed in forbearance since summer 2024 were affected.
Although monthly payments remained paused for the time being, balances began to grow as interest accrued. The Education Department did not apply the change retroactively, so interest was not added for past months that had already occurred.
How Much More Borrowers Are Paying
The financial impact is significant for many borrowers. The Student Borrower Protection Center estimated that resuming interest could result in roughly $27 billion more in combined interest over a one-year period.
On average, borrowers face about $3,500 in additional interest per year, equating to roughly $300 a month. That extra interest is added on top of principal balances, making loans harder to pay down if no action is taken.
While borrowers in forbearance are not required to make payments, the Education Department has advised that people may make interest-only payments to slow balance growth. For those who can afford it, paying accrued interest now can reduce the “sticker shock” when full payments resume.
Effects on Loan Forgiveness
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The situation has complicated progress toward forgiveness programs. Months spent in SAVE forbearance generally have not counted toward forgiveness under Public Service Loan Forgiveness (PSLF) or income-driven repayment forgiveness unless borrowers switched into a legally compliant plan—such as Income-Based Repayment (IBR).
Some PSLF applicants have been able to “buy back” months of payment history to help reach forgiveness sooner, but that required leaving SAVE. Court orders suspended forgiveness credit under SAVE and the Pay As You Earn (PAYE) plan, while Income-Contingent Repayment (ICR) forgiveness was not blocked but has experienced delays due to system updates.
Currently, IBR remains one of the options where forgiveness processing continues, although administrative updates have temporarily slowed benefit processing.
Parent PLUS borrowers who want to preserve PSLF eligibility can consolidate into a Direct Consolidation Loan and enroll in ICR. Previously, some borrowers used a “double consolidation” strategy to access other repayment plans, but recent rule changes have limited that approach. The consolidation path is available but not required for PSLF.
Guidance for Borrowers
Federal officials encouraged borrowers to move into repayment plans that are legally compliant. Applications for IBR, PAYE, and ICR were already in the system, so borrowers who previously applied generally do not need to reapply. However, a backlog of roughly 1.5 million income-driven repayment applications means switching plans may take time to appear on account records.
Borrowers are advised to use the Department of Education’s Loan Simulator to compare monthly payments across plans and estimate how long it will take to reach any remaining forgiveness. For those pursuing PSLF or other discharge programs, leaving SAVE and enrolling in an eligible plan has been the primary way to earn credit toward forgiveness again.
What’s Next in Student Loan Repayment
The repayment landscape is changing. The One Big Beautiful Bill Act, signed in July 2025, creates a new Repayment Assistance Plan (RAP) slated to begin by July 1, 2026. RAP will calculate payments as a percentage of income and provide forgiveness after 30 years of eligible payments. Over time, PAYE and ICR are expected to be phased out in favor of fewer, more streamlined repayment options.
In the near term, millions of SAVE enrollees are already seeing interest accrue again—a disappointing shift after earlier promises of relief. Understanding the evolving rules can help borrowers prepare: monitoring Department of Education updates, comparing plans with the Loan Simulator, and deciding whether to switch into a legally compliant repayment plan sooner rather than later can materially affect the total amount paid over time.
For borrowers able to make interest-only payments or to switch to an eligible income-driven plan, those steps can limit balance growth and preserve progress toward forgiveness. Staying informed and acting on available options will help borrowers manage the changing repayment environment.