Servicers Are Reducing Student Loan Balances For Some Borrowers-Here’s Why

Some student loan borrowers began receiving notices this month that their loan balance is being adjusted. While this may cause alarm, in many cases this might be good news, as it could result in a reduction of the amount owed on their student loans.
The reason for the balance adjustment is due to the fact that some loan student loan servicers did not properly apply an interest waiver during an administrative forbearance period associated with the SAVE plan, an income-driven repayment plan launched during the Biden-Harris administration that has been blocked for more than a year and a half. The forbearance had paused payments as well as interest. Interest is now accruing on all student loans that are in the SAVE forbearance as of August, but it shouldn’t have been accruing during the first 12 months of the pause.
Here’s the latest, and what student loan borrower should know about these balance adjustments.
Student Loan Interest Had Been Paused Under SAVE Plan Forbearance
After a federal appeals court issued an injunction in the summer of 2024 blocking the SAVE plan, millions of student loan borrowers were forced into an administration forbearance. The forbearance halted repayment obligations and suspended interest accrual for more than seven million borrowers. However, the forbearance period didn’t count toward student loan forgiveness.
In August 2025, the Trump administration then resumed charging interest on student loans that were in the SAVE plan forbearance, citing subsequent court rulings that called into question the interest benefits associated with the repayment program.
MORE FOR YOU
“Today, the U.S. Department of Education announced it will take an additional step to bring fiscal responsibility to the federal student loan portfolio by restarting interest accrual for borrowers with loans in the illegal Saving on a Valuable Education (SAVE) Plan on August 1, 2025,” said the department in announcement last July. “The Department will take this action to comply with a federal court injunction that has blocked implementation of the SAVE Plan, including the Department’ s action to put SAVE borrowers in a zero percent interest rate status.”
“Congress designed these programs to ensure that borrowers repay their loans, yet the Biden Administration tried to illegally force taxpayers to foot the bill instead, ” said U.S. Secretary of Education Linda McMahon in a statement accompanying the announcement. “As part of this effort, the Department urges all borrowers in the SAVE Plan to quickly transition to a legally compliant repayment plan – such as the Income-Based Repayment Plan. Borrowers in SAVE cannot access important loan benefits and cannot make progress toward loan discharge programs authorized by Congress.”
While the Trump administration’s directive restarted interest accrual for all student loans in the SAVE plan forbearance, it did not retroactively undo or reverse the suspension of interest accrual that borrowers had enjoyed for the preceding 12 months of the forbearance period. However, not all student loan borrowers had received that interest subsidy in the first place, even during the first year of the administrative forbearance.
Student Loan Servicers Announce Balance Reductions For Improper Interest Accrual During SAVE Plan Forbearance
This month, some student loan servicers started sending out notices to borrowers whose balances had accrued interest during the first 12 months of the SAVE plan forbearance, even though that should never have happened.
“Your account balance was adjusted,” reads one notice sent by MOHELA, one of the Education Department’s contracted student loan servicers. “There was a period of time eligible loans qualified for a 0% interest rate. We recently performed a review of your account and have made adjustments to your account balance based on your SAVE forbearance and the 0% interest accrual. No action is required by you as this adjustment is now complete.” The notice confirms that interest started accruing again for all SAVE plan student loan borrowers in August 2025.
The balance adjustments could result in a meaningful reduction of a borrower’s student loan balance, depending on their exact balance and interest rate. For example, a federal student loan balance of $100,000 with a 6% interest rate would have accrued $9,000 in interest during the 18-month SAVE plan forbearance period to date, bringing the total balance to $109,000 (assuming the borrower made no payments during that time). If that interest had improperly accrued during the first 12 months, a downward adjustment of the balance could reduce it to $103,000.
The Education Department has not issued a formal announcement on the SAVE plan balance adjustments or made any public comment. And it is unclear how many student loan borrowers are impacted, how much borrowers’ balances are being reduced, and whether the adjustments to eligible student loans are complete or ongoing.
Student Loan Interest Is Now Accruing On All Loans As SAVE Plan Ends
Currently, interest is accruing on all federal student loan balances, including for borrowers still in the SAVE plan forbearance. Borrowers should be aware that the SAVE plan will be coming to an end, likely within the next few months, after the Education Department entered into a settlement agreement with the state of Missouri and other states that had challenged the legality of the repayment program.
“On Dec. 9, 2025, the U.S. Department of Education (ED) announced a proposed settlement agreement with the state of Missouri that would end the Saving on a Valuable Education (SAVE) Plan,” says a statement on the department’s website that provides updates on the SAVE plan court challenges. “As part of the proposed settlement agreement, which is pending court approval, ED would not enroll any new borrowers in the SAVE Plan, deny any pending SAVE applications, and move all SAVE borrowers into available repayment plans.”