The landscape of federal student loan repayment is undergoing a significant transformation as the Trump administration phases out the controversial SAVE (Saving on a Valuable Education) Plan, a hallmark initiative of the previous administration. This strategic policy pivot introduces new repayment structures, poised to impact millions of borrowers and redefine the government’s approach to student debt management.
- The SAVE (Saving on a Valuable Education) Plan, introduced by the Biden administration in 2023, is being phased out.
- The SAVE Plan, which capped payments at 5% of discretionary income for undergraduates and 10% for graduate loans, faced legal challenges and was blocked by federal courts in 2024.
- Approximately 460,000 enrolled borrowers and nearly 8 million under related forbearance are directly impacted by its discontinuation.
- The Trump administration, via a July 18 policy letter, confirmed SAVE’s official replacement by the “One Big Beautiful Bill Act.”
- New repayment options include a revised 10-year standard plan and the Repayment Assistance Plan (RAP).
The Policy Shift and Its Antecedents
The SAVE Plan, an initiative launched by the Biden administration in 2023, was designed to mitigate repayment burdens. It stipulated a cap on monthly payments at 5% of discretionary income for undergraduate loans and 10% for graduate loans. As detailed in internal Education Department documents reported by Politico, the program aimed to improve affordability, especially for low- and middle-income federal student loan borrowers. Nevertheless, the plan faced substantial legal obstacles, culminating in its blockage by federal courts in 2024. This judicial intervention led to the plan’s suspension, with interest accrual subsequently scheduled to resume as per court order.
The SAVE Plan operated separately from the broader student loan forgiveness initiative, which the Supreme Court had previously ruled unconstitutional, stipulating that such widespread debt cancellation required congressional approval. Consequently, the SAVE Plan served as a critical fallback strategy for debt relief. Its definitive discontinuation directly impacts approximately 460,000 federal student loan borrowers who had actively enrolled in the program. Moreover, nearly 8 million borrowers who were previously associated with the SAVE Plan had been under a general forbearance, which provided exemption from both monthly payments and interest accrual.
Trump Administration’s New Framework
The Trump administration has consistently voiced strong criticism of the SAVE Plan, primarily characterizing it as fiscally unsustainable and overly generous. This stance was formalized on July 18, when a policy letter from the Education Department confirmed SAVE’s official phase-out. The plan is now superseded by provisions within the One Big Beautiful Bill Act. The department unequivocally stated that loan servicers are no longer authorized to process SAVE applications, explicitly deeming the plan “illegal” under the new framework.
As part of this comprehensive overhaul, the Education Department is introducing two distinct repayment options: a revised 10-year standard repayment plan and a new Repayment Assistance Plan (RAP). Both are engineered to simplify the federal student loan system and mitigate taxpayer burden by linking payments to a streamlined, formulaic assessment of income.
The Education Department, operating under President Donald Trump, asserted that the SAVE Plan had induced “millions of borrowers” to enroll “based on the false promise of loan cancellation and zero monthly payments.” This claim was made despite prior federal court rulings that had already challenged such policies. Furthermore, the department criticized the previous administration for implementing a “zero-percent ‘litigation forbearance,’” arguing that it unfairly shifted costs to taxpayers and left borrowers without clear guidance on their repayment obligations. The current administration has, in turn, pledged to direct borrowers toward “new, legal repayment plan[s]” that are designed to align with individual financial needs while simultaneously safeguarding taxpayer interests. This pivotal policy shift represents a significant divergence in federal student loan management, emphasizing fiscal restraint and streamlined repayment structures over the more expansive, income-driven models advocated by the preceding administration.
David Thompson earned his MBA from the Wharton School and spent five years managing multi-million-dollar portfolios at a leading asset management firm. He now applies that hands-on investment expertise to his writing, offering practical strategies on portfolio diversification, risk management, and long-term wealth building.