Last Monday, the Department of Education announced that it would restart collection of defaulted federal student loans on May 5. The order is yet another indication that the Trump administration intends to roll back many of the COVID-era benefits extended to student loan borrowers.

The student loan plan Saving on a Valuable Education (SAVE) appears to be one of many Biden-era programs on the chopping block. The plan sputtered into existence in the fall of 2023, but never quite got off the ground. The Biden administration introduced SAVE as another income-driven repayment program, and by February of the following year, seven Republican-led states filed a lawsuit against the U.S. Department of Education’s plan that put those enrolled in the plan into forbearance by the summer of last year.

The SAVE plan was geared toward teachers and social workers and meant for those in non-profit careers to benefit from jointly enrolling in the SAVE plan and the Public Service Loan Forgiveness (PSLF) plan. The PSLF program required that borrowers make at least 120 qualifying payments before their loans were forgiven. Borrowers enrolled in the SAVE program had lower monthly payments than other income-based repayment plans and could also use their monthly payments to achieve loan forgiveness within 10 to 25 years.

The difference between SAVE and other income-based repayment plans was in its low monthly payments. A SAVE calculator that I tried out estimated my monthly payments to be about one-fifth of what I used to pay on another IBR program (I have since paid off my student loans). In theory, then, if the program had survived, I could have enrolled in PSLF, worked for a non-profit for 10 years and reduced my total repayment amount by thousands of dollars.

Last summer, the U.S. 8th Circuit Court of Appeals issued an injunction blocking the SAVE plan. The court agreed with the states that SAVE was a back door for mass student loan forgiveness. The appeals court ruling put the more than eight million borrowers enrolled in SAVE into forbearance, 2.9 million of whom had no monthly payments.

And last Monday, Education secretary Linda McMahon confirmed in a blunt Wall Street Journal op-ed, “There will not be any mass loan forgiveness. If you are a student borrower with a federal loan balance and haven’t been making payments, you must restart payments now.”

According to the Education Department, just 38% of borrowers are in repayment and current on their student loans, down from 60% in the pre-COVID era. The other nearly two-thirds of borrowers are either delinquent or in interest-free forbearance or deferment.

In 2023, the University of Pennsylvania’s Penn Wharton Budget Model found that implementing SAVE could cost the government as much as $475 billion a decade.  At the same time, inflation, rising college costs, and stagnant wages have made student loans the only way that many young people can afford to go to college.

Although SAVE is not likely to survive, other income-driven repayment plans still exist. As of March 26, the Department of Education reopened the online income-driven repayment applications. The plan was blocked to comply with the 8th Circuit Court of Appeals injunction last month to cease implementation of the SAVE plan and parts of other IDR plans. According to the Education Department, the application needed to be revised due to the injunction.

It's still up for debate what the fallout will be from this latest announcement from the Education Department. One thing is clear, however: The time of 0% interest rates, paused payments, and uncollected default loans is coming to an end. A lot of borrowers stopped paying back their student loans during this period. By the summer, we will begin to see whether this next phase will signal the beginning of an age of massive defaults on student loans or a steady transition back to the way things were pre-COVID.  

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