The U.S. Department of Education announced a proposed settlement on Tuesday that would end the Biden-era Saving on a Valuable Education (SAVE) repayment program and shift millions of borrowers into other plans. The deal must still be approved by the court.
SAVE, widely seen as the most generous income-driven repayment option, had offered faster paths to forgiveness and monthly payments as low as $0 for low-income borrowers. Republican state attorneys general, led by Missouri, sued the administration, arguing the plan was overly generous and exceeded federal authority. That litigation left SAVE borrowers in limbo for months; during the dispute they were not required to make payments even after many had already benefitted from a pandemic payment pause. Interest on SAVE loans began accruing again in August.
Education Department officials framed the settlement as a correction of federal overreach, saying borrowers must ultimately repay loans and that taxpayers should not be left holding the cost of an unlawful policy. Under the proposed agreement the department would stop enrolling new borrowers in SAVE, deny all pending SAVE applications and transition roughly 7 million currently enrolled borrowers into other repayment plans. Some of the alternative plans are themselves subject to change.
Borrowers would have a limited window to choose a replacement plan and must pick between fixed-payment options or income-driven plans. Two new plans established under Republican legislation known as the One Big Beautiful Bill Act (OBBBA) are scheduled to roll out in July 2026: a revised standard plan and a new income-driven option called the Repayment Assistance Plan. Although OBBBA had required a transition by July 1, 2028, Tuesday’s settlement would accelerate that timeline; the department has not yet announced specific deadlines.
Loan servicers face a massive operational challenge in moving millions of people into different plans. Servicing industry leaders warn the transition will be difficult because many SAVE borrowers have not been in regular repayment for years and will need extensive outreach and support to resume payments and select new plans.
Consumer advocates warn the timing could push distressed borrowers over the edge. Advocates say the department’s decision to abandon SAVE in response to state lawsuits will make repayment harder and could increase defaults. A recent American Enterprise Institute analysis of federal student loan data underscores the risk: 5.5 million borrowers are currently in default, another 3.7 million are more than 270 days late and 2.7 million are in earlier stages of delinquency — roughly 12 million borrowers in all who are worryingly behind on payments.
If the settlement is approved, the Education Department and loan servicers will need to move quickly to notify borrowers, provide options, and manage a complex transition that will affect millions of people and the wider student loan landscape.