5 Takeaways For Student Loans As Millions Forced To Switch Repayment Plans

Student loan borrowers got hit with another wave of bad news this week after the Education Department announced a settlement agreement that will end the SAVE plan. The SAVE plan had offered millions of borrowers affordable monthly payments tied to their income and a path to eventual student loan forgiveness. With the program now officially getting nixed, millions of borrowers with student loans enrolled in SAVE will need to switch to a different repayment plan.

“Ripping the SAVE plan away from student loan borrowers now without access to a clear and affordable alternative is reckless and short-sighted, creating even more needless confusion, uncertainty, and financial stress for millions of Americans already struggling with the rising cost of living,” said Abby Shafroth, managing director of advocacy at the National Consumer Law Center in a statement this week following the Education Department’s settlement announcement. “The SAVE plan had created a meaningful pathway for low- and middle-income people to move toward paying off their student loans while making affordable monthly payments. Now, in the midst of a national affordability crisis, their way forward is murky and complicated.”

The department’s settlement announcement makes clear that major changes are in store for more than seven million federal student loan borrowers who are currently in the SAVE plan administrative forbearance. But other details are unclear and will need to be worked out. Here’s a breakdown, and what borrowers who have student loans in the SAVE plan should know.

Student Loans Not Eligible For Loan Forgiveness Under SAVE Plan

Under the terms of the settlement agreement announced on Tuesday, the Education Department is prohibited from granting any student loan forgiveness under the SAVE plan or its predecessor, the REPAYE plan. Both plans had offered loan forgiveness after 20 or 25 years in repayment, although some borrowers in SAVE could qualify for a discharge sooner than that.

“Defendants will not forgive loans under the SAVE Plan (or under the REPAYE plan) using the Department of Education’s income-contingent repayment (ICR) authority, Higher Education Act of 1965 § 455, 20 U.S.C. § 1087e, as it was interpreted by the SAVE Plan Final Rule,” reads the settlement agreement, which is pending court approval.

To qualify for student loan forgiveness on the 20- or 25-year repayment term under income-driven repayment plans, borrowers would need to switch to a different IDR program. Currently, borrowers can enroll in the ICR, PAYE, and IBR plans, depending on eligibility. And the Education Department recently affirmed in a separate settlement agreement involving a different legal challenge that it would resume processing student loan forgiveness under those plans.

Borrowers should be able to carry over their qualifying payment counts toward student loan forgiveness from the SAVE plan to those other IDR plans. The department is also planning on launching a new IDR option called the Repayment Assistance Plan, or RAP, next year, although that plan would require 30 years of payments before a borrower can qualify for loan forgiveness.

Student Loans Enrolled In SAVE Plan Still Can Be Eligible For Other Student Loan Forgiveness, Including PSLF

The Education Department noted in the settlement agreement that while borrowers cannot receive IDR-based student loan forgiveness under SAVE or REPAYE, nothing prevents the department from awarding loan forgiveness under other programs to borrowers who happen to be enrolled in the SAVE plan or the associated administrative forbearance. That includes Public Service Loan Forgiveness, or PSLF.

“Nothing in this Settlement Agreement shall prevent the Department of Education from forgiving loans of individuals currently enrolled in the SAVE Plan using a separate source of legal authority, such as Borrower Defense to Repayment discharges, discharges due to the borrower’s death, Total and Permanent Disability Discharges, Closed School Discharges, or Public Service Loan Forgiveness,” reads the settlement agreement.

However, borrowers pursuing student loan forgiveness through PSLF may still need to change repayment plans if they are short of the 120 qualifying payments needed to be eligible for relief. Borrowers can also apply for loan forgiveness through the PSLF Buyback program if they are eligible. But PSLF Buyback is experiencing lengthy processing delays due to a significant application backlog.

Borrowers With Student Loans In SAVE Plan Will Need To Switch, But Timing Is Unclear

Another signifiant takeaway from the Education Department’s announcement this week is that borrowers who have been stuck in the involuntary SAVE plan forbearance associated with the lawsuit challenging the program will need to switch to a different repayment plan in the coming months, regardless of whether they are specifically pursuing student loan forgiveness or not.

The timing of the required switch, however, is unclear. While legislation passed by Congress this summer sunsets the SAVE plan by July 2028, the Education Department’s settlement announcement this week will dramatically accelerate that timeline. Currently, borrowers can apply to other IDR plans (depending on eligibility) including ICR, IBR, and PAYE. And RAP is expected to launch next year. Monthly payments under all four of those plans will likely be much higher than under SAVE for many borrowers.

But the department has provided no details on when, exactly, borrowers will be required to place their student loans in a different repayment plan, nor has the department indicated what will happen to borrowers in the SAVE plan forbearance who don’t affirmatively take steps to switch plans. It is possible that some borrowers will be forced into a different, more expensive repayment plan if they don’t choose one themselves.

“Defendants will not enroll any new borrowers in the SAVE Plan, will deny any pending enrollment applications for the SAVE Plan, and will continue working to move all current borrowers out of the SAVE Plan,” reads the settlement agreement.

Consolidating Student Loans Will Erase Student Loan Forgiveness Credit

A lesser-discussed consequence of the Education Department’s SAVE plan settlement is increased risks for consolidations of federal student loans.

Under the terms of the settlement, nearly all of the SAVE plan regulations are getting eliminated. Included in those regulations is a provision that allows borrowers to retain the weighted average of existing credit they have toward IDR student loan forgiveness when consolidating their federal student loans via the Direct loan program. But that provision of the regulations will be eliminated, along with most of the rest of the SAVE plan rules. That means that going forward, borrowers who consolidate federal student loans with existing credit toward IDR student loan forgiveness will lose that credit and start over at zero on a 25- or 30-year repayment term. Borrowers will be able to keep the weighted average of loan forgiveness credit toward PSLF, which is allowable under a separate regulatory provision.

The only portion of the SAVE plan regulations that will survive is a provision that allows certain periods of deferment and forbearance to count toward IDR student loan forgiveness. But the SAVE plan forbearance itself does not count toward loan forgiveness.

Education Department Will Initiate Rulemaking Process To Decide Fate Of Student Loans In SAVE Plan

The settlement agreement will require the Education Department to initiate a formal rulemaking process to hammer out the details of transitioning student loans in the SAVE plan to other programs. In the course of that rulemaking, the department may also tweak elements of the ICR and PAYE plans, which will be sunsetted in 2028 under the One Big, Beautiful Bill Act, or OBBBA, that Congress passed in July.

“Defendants will pursue negotiated rulemaking to effectuate this settlement,” reads the agreement. “As part of that negotiated rulemaking, the Department of Education will consider: (a) a formal and complete repeal of the SAVE Plan Final Rule, (b) sunsetting the Original ICR Plan under 34 C.F.R. § 685.209(a)(4), and (c) sunsetting the PAYE Plan under 34 C.F.R. § 685.209(a)(3), consistent with Section 82001(c) of the One Big Beautiful Bill Act (OBBBA), Pub. L. No. 119–21, 139 Stat. 72, 340– 41 (July 4, 2025). Defendants have not prejudged the outcome of that negotiated rulemaking process, to the extent that the Department of Education retains any policy discretion on these subjects in the aftermath of the enactment of the OBBBA.”

Ultimately, borrowers with student loans enrolled in the SAVE plan do not need to take immediate action. It will take at least some time for the department to initiate the rulemaking process, finalize proposed new regulations, and implement the student loan updates. But it is quite possible, if not likely, that borrowers in the SAVE plan forbearance will be forced to move into a different repayment plan sometime in 2026. Those who are enrolled in SAVE, particularly borrowers who are pursuing student loan forgiveness under IDR or PSLF, should start planning now.