Huge Update On Student Loans Expected In 12 Days For Key Payment Plan

Student loan borrowers in a key repayment plan may be getting a major update in less than two weeks. And the news is probably not going to be good for their student loans.
Borrowers who had enrolled in the SAVE plan have been stuck in limbo for more than a year due to an ongoing legal challenge. SAVE is an income-driven repayment plan created under the Biden-Harris administration that launched in 2023, offering lower payments, a generous interest subsidy, and a faster pathway to eventual student loan forgiveness. But a group of Republican states challenged the program. And last year, a federal appeals court issued an injunction blocking the SAVE plan as the lawsuit continued.
Last month, the group of states and the Trump administration filed a joint status report indicating that they are in settlement discussions to resolve the SAVE plan litigation. And a potential resolution could be announced by next week. Given that the GOP-led states and the Trump administration are aligned in opposing the SAVE plan, any outcome is unlikely to be positive for borrowers and may force student loans enrolled in the program into other, more expensive repayment plans. Here’s the latest.
Student Loans Stuck In SAVE Plan Forbearance, Impacting IDR And PSLF
Under the SAVE plan, borrowers had been offered affordable payments, a generous interest subsidy, and a pathway to student loan forgiveness, in some cases in less than 20 years. More than eight million borrowers had enrolled in the program or were automatically transferred from SAVE’s predecessor repayment plan that was called REPAYE, or Revised Pay As You Earn. But most of these borrowers have been stuck in an involuntary forbearance for more than 15 months as a result of the court injunction issued by the Eighth Circuit Court of Appeals last year.
“You are in a general forbearance, unless you obtained a different status (for example, deferment), because your loan servicer is not currently able to bill you at an amount required by the court injunction,” says the Education Department in guidance for SAVE plan borrowers impacted by the injunction. “You will be in this forbearance until servicers are able to accurately calculate monthly payment amounts or the court reaches a decision on the availability of the SAVE Plan. Borrowers will be informed of any further change to this litigation-related forbearance.”
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Importantly, time spent in the forbearance does not count toward student loan forgiveness for IDR plans or for Public Service Loan Forgiveness. And the Trump administration resumed charging interest on student loans in the SAVE plan last summer.
“Under this general forbearance, you don’t have to make your monthly payments on your student loans; interest does accrue, starting Aug. 1, 2025; and time spent doesn’t provide credit toward Public Service Loan Forgiveness (PSLF) or IDR,” says the department.
Borrowers pursuing student loan forgiveness through PSLF can potentially “buy back” the time associated with the SAVE plan forbearance through the PSLF Buyback program. But PSLF Buyback has been roiled by significant backlogs and application processing delays, imperiling relief under the program.
Student Loans Could Get Kicked Out Of SAVE Plan
In July, Congress passed the One Big, Beautiful Bill Act, or OBBBA, which will phase out the SAVE plan (as well as the ICR and PAYE plans) by July 1, 2028. But student loan borrowers who were hoping that they could remain in the SAVE plan forbearance for another two and a half years may be in for an unfortunate surprise.
The GOP-led states that originally sued the Biden administration to try to block the SAVE plan are now in talks with the Trump administration to resolve the litigation through a settlement. And the two sides are now much more aligned in their goal of ending the SAVE plan altogether, without necessarily waiting for the 2028 cutoff. The parties are expected to announce a potential deal within a a matter of days.
“Before the lapse in appropriations, the parties were engaged in settlement discussions,” said attorneys for the states and the Trump administration in a joint status report filed with the court last month. “The lapse in appropriations delayed those discussions, but they have since resumed. Nevertheless, the parties need a brief period of additional time to conclude their discussions, finalize an agreement, and reduce it to a fully executed writing. The parties thus propose to file their next joint status report in three weeks, on or before December 15, 2025.”
It is quite possible that a final settlement agreement could be included with that next joint status report expected to be filed by December 15. And that settlement agreement may very well mandate the phase-out of SAVE much earlier than July 2028. Some observer expect SAVE to officially sunset sometime in 2026, much sooner than some borrowers may have been expecting.
Repayment Options For Student Loans If SAVE Plan Forbearance Ends Early
If the settlement agreement between the GOP states and the Trump administration mandates the end of the SAVE plan, then the millions of borrowers that remain in the administrative forbearance will likely be forced to select a different repayment plan sometime next year – something the Education Department has already been pushing borrowers to do.
“Eligible borrowers can apply for or recertify under the Income-Based Repayment (IBR), Income-Contingent Repayment (ICR), and Pay As You Earn (PAYE) Repayment Plans,” says department guidance on the SAVE plan litigation. The IBR plan will also be expanding sometime later this month to include borrowers with higher earnings, according to the department.
“We encourage borrowers to look at the specific terms of each plan to make the best choice for their individual situation,” continue the department. “Different IDR plans may require different monthly payments, and—in the case of the IBR Plan—borrowers who later enroll in a different repayment plan may face interest capitalization (where unpaid interest is added to the principal balance). However, payments made under these IDR plans will count toward forgiveness under IDR and PSLF.”
However, most borrowers will see their monthly payments increase under any of the other available repayment plans. That’s because of a combination of factors. First, SAVE allowed for lower monthly payments on student loans compared to ICR, IBR, and PAYE. In addition, many borrowers under SAVE had payments calculated based on outdated income information due to income recertification delays associated with the pandemic-era forbearance; a lot of those borrowers may now have higher incomes. Enrolling in a more expensive student loan repayment plan at a higher income level could mean substantial increases in monthly payments.
Next summer, under the OBBBA, the Education Department will be launching the Repayment Assistance Plan, or RAP. RAP is expected to offer lower student loan payments for some borrowers as compared to IBR, as well as a generous interest subsidy similar to what the SAVE plan had offered. But RAP will also have a 30-year repayment term for student loan forgiveness, which is a significant downside. Once the ICR, PAYE, and SAVE plan are gone, current borrowers with federal student loans will have only two choices for income-driven repayment: IBR, or RAP.