Trump Administration Moves to Dismantle Student Loan Relief Plan

The U.S. Department of Education (ED) has announced significant changes that threaten to dismantle the income-driven SAVE Plan, impacting millions of student loan borrowers. As a result of a settlement reached on December 9, 2025, approximately 7.7 million federal student loan borrowers will be required to transition to alternative repayment plans and resume monthly payments.

The changes come after several states challenged the SAVE Plan in court. Under this new policy, the ED will cease enrolling new borrowers and deny pending applications. Existing participants will be shifted to other repayment options, including Income-Based Repayment (IBR), Pay As You Earn (PAYE), or Income-Contingent Repayment (ICR), according to a report by Business Insider. The department also stated that interest on loans under SAVE had resumed in August 2025, following a court order that invalidated parts of the plan.

Impact on Borrowers

The sudden shift back to repayment may pose serious financial challenges for many borrowers. A significant portion of those affected had previously benefited from lower or suspended payments under the SAVE Plan. According to a survey conducted by Data for Progress and The Institute for College Access and Success, about 42% of federal student loan borrowers were already struggling to manage their debt alongside essential expenses like housing and food.

The transition to other repayment schemes might result in much higher monthly payments, often without the same relief or forgiveness options that were available under SAVE. TransUnion’s analysis revealed that as of April 2025, nearly 31% of federal student-loan borrowers with payment obligations were over 90 days past due. This rise in delinquency puts many borrowers, particularly recent graduates or those with lower incomes, at increased risk of default. Reports from The Guardian indicate that one in three borrowers faces this risk as the payment pause initiated during the pandemic concludes.

Financial experts warn that the collapse or modification of the SAVE Plan could see borrowers facing monthly bills that surge by hundreds of dollars. This abrupt increase, coupled with the resumption of interest accrual, may push financially vulnerable borrowers to a breaking point. Analysts at TD Economics have described the current situation as a “default cliff,” indicating that millions of borrowers are already overdue and that collection efforts are ramping up.

The ED is encouraging affected borrowers to utilize its online loan-simulator tool to gauge new payment obligations and explore the most suitable repayment plan ahead of the automatic transitions.

Background of the Changes

The backdrop to these changes began in 2020 when a broad suspension of student loan payments was imposed due to the COVID-19 pandemic. In 2023, the SAVE Plan emerged as a replacement for older income-driven repayment plans, offering a long-term, income-sensitive repayment strategy. However, the SAVE Plan soon encountered numerous lawsuits alleging administrative overreach in its implementation.

The Department of Education had placed millions of borrowers in administrative repayment, delaying payments and freezing interest, as courts began blocking portions of the plan in 2024. Following court-ordered modifications, interest resumed in August 2025, leading to the current upheaval in repayment processes.

As the landscape of student loans continues to evolve, borrowers are left navigating complex changes that could have lasting implications on their financial well-being.