This month, interest began accruing again for more than seven million student loan borrowers stuck in the SAVE plan forbearance. A new repayment plan expected to be launched in the coming months may offer some borrowers a way to pause interest accrual again. But it could come at a cost.
Interest had been paused for SAVE plan borrowers for nearly a year. Last summer, a federal appeals court blocked the Biden-era repayment program in response to a legal challenge brought by a group of Republican-led states, thrusting millions of borrowers into a forced forbearance that suspended payments and set interest rates to zero. The Trump administration argued last month that restating interest during the forbearance was required under a new court order issued last February.
“The Department lacks the authority to put borrowers into a zero percent interest rate status,” said the Department of Education in a statement last month announcing the resumption of interest. “The Biden Administration also invented a zero percent ‘litigation forbearance,’ forcing taxpayers to foot the bill and leaving borrowers without clear direction on how to legally repay their loans.”
Critics argued that nothing in recent court decisions related to the SAVE plan litigation compelled the Department of Education to restart interest accrual, and prior court rulings had affirmed the interest-free forbearance while the litigation continued. One analysis concluded that borrowers would be hit with more than $3,000 in annual additional costs due to interest accrual resuming.
There is no way presently for student loan borrowers in the SAVE plan to halt the accrual of interest. The good news, though, is that a new repayment plan will be released in the coming months that may allow some borrowers to effectively halt excess interest accrual and, thus, retain at least some of the interest-savings benefits associated with SAVE. However, that new plan is not immediately available, and accessing those benefits may come at a significant price. Here’s what borrowers should know.
Student Loan Interest Under SAVE Plan Resumes
Last Friday, interest began accruing again for millions of SAVE plan student loan borrowers. Interest rates had been effectively set to 0% since August 2024 after the Eighth Circuit Court of Appeals issued an injunction which blocked the program. This decision, which paused but did not strike down the SAVE plan, forced millions of borrowers into an administrative forbearance that has suspended all payments and interest for the last 12 months.
But, following the Trump administration’s abrupt decision in July to resume interest for SAVE plan borrowers, interest started accruing again as of August 1, 2025.
“Your loan(s) in the SAVE forbearance will begin accruing interest on Aug. 1, 2025,” reads a mass email sent to the nearly eight million borrowers who have been in the SAVE forbearance. “You won’t have to make payments until the courts reach a final decision and the SAVE forbearance ends, but your balance will grow when interest starts accruing on Aug. 1, 2025.”
As a result, borrowers’ student loan balances have started increasing. Borrowers can make voluntary payments to reduce or pay off that interest as it accrues, but they are not required to do so at this time. Notably, student loans enrolled in SAVE remain in an administrative forbearance status even as interest accrues. That means that while voluntary payments are allowed, they still won’t count toward student loan forgiveness for income-driven repayment or Public Service Loan Forgiveness.
Borrowers’ only other option would be to switch to a different repayment plan.
“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 that was updated in July following the announcement about interest resuming.
But while switching to the ICR, IBR, and PAYE plans would allow borrowers to start making qualifying payments toward student loan forgiveness under IDR plans and PSLF again, that won’t stop interest from accruing. These older income-driven repayment plans have limited interest benefits. The IBR plan will cover interest accrual for subsidized federal student loans during the first three years of enrollment, while PAYE limits the amount of interest that can be capitalized (meaning added back on to the loan principal). But aside from that, these repayment plans have no meaningful interest benefits. And if a borrower’s monthly payment is less than the amount of monthly interest accrual, their overall loan balance will increase over time, even as they make their required payments. This is a process called negative amortization, and can lead to huge balance growth.
New RAP Option Would Suspend Excess Student Loan Interest
The good news for student loan borrowers is there will soon be a new repayment plan option that could restore some significant interest benefits. The Repayment Assistance Plan, or RAP, is a new income-driven repayment plan that was enacted under President Trump’s so-called “Big, Beautiful Bill.” RAP will have monthly payments tied to income much like the existing income-driven plans, and RAP also will be a qualifying repayment plan for the PSLF program.
One of the most significant benefits of RAP compared to existing income-driven repayment plans is an interest and principal subsidy. The plan would waive any excess interest that accrues above a borrower’s minimum required RAP payment, and would also allow up to $50 of each monthly payment to be applied directly to principal. Previously, federal law mandated that 100% of a federal student loan payment must go entirely to interest before any portion of that payment would be applied to principal. This is not as generous as the interest freeze under the SAVE plan forbearance, but it is more beneficial than the interest-only subsidy that had been offered under the SAVE plan itself.
Taken together, while RAP would not halt all interest accrual, the principal and interest subsidy would prevent runaway balance growth and mitigate interest accrual for borrowers with a high debt-to-income ratio. This will allow borrowers to gradually reduce their student loan balance, even if they have very low payments.
RAP Has Downsides That Could Be Costly For Student Loan Borrowers
But RAP has some significant downsides, which student loan borrowers should be aware of:
- The RAP interest and principal subsidy would only apply to borrowers whose calculated monthly payment is less than the amount of monthly interest accrual. Borrowers whose monthly student loan payments exceed the amount of interest accrual would receive no subsidy.
- RAP will likely have higher monthly payments for borrowers than what they had paid under the SAVE plan. Those who have experienced an increase in their income since they last provided the Department of Education with their income data may see an even larger jump in payments.
- RAP has a 30-year repayment term before a borrower can qualify for student loan forgiveness. This is far longer than the 20- or 25-year terms offered to borrowers under ICR, IBR, PAYE, and SAVE.
- RAP has a less generous treatment of family size for purposes of calculating a borrower’s monthly payment. RAP only offers a $50 deduction in monthly payment per dependent child. The other income-driven plans have broader definitions of family size that include a borrower’s spouse, the borrower’s children who receive at least half of their financial support even if they are not claimed as dependents, and other individuals living in the household who receive at least half of their support from the borrower.
- RAP’s repayment formula is not indexed to inflation, in contrast to ICR, IBR, PAYE, and SAVE. That means that more borrowers will be pushed into a higher repayment plan bracket under RAP as wages rise over time.
Thus, some SAVE plan borrowers can eventually switch to RAP to retain some of the interest benefits associated with SAVE and the related administrative forbearance. But those benefits are not necessarily as generous (particularly compared to the SAVE plan forbearance), and they could come at a steep price when factoring in the potential downsides of RAP.
When Student Loan Borrowers Can Access RAP
Even if SAVE plan student loan borrowers want to quickly jump to RAP to mitigate the resumption of interest this month, they can’t, as RAP is not available yet. The Department of Education has not expressly indicated when RAP will launch, and did not include any details on the rollout of the plan in a recent “Dear Colleague” letter that outlined the department’s initial steps to implement the “Big, Beautiful Bill.” However, RAP is expected to launch no later than July 1, 2026, which is when new borrowers will be cut off from existing income-driven plans including ICR, IBR, PAYE, and SAVE.