US student loan crisis deepens: How SAVE Plan borrowers could pay $3,500 more in interest annually

The financial burden on millions of American student loan borrowers is set to increase substantially from next month, following a major policy shift by the US Department of Education.

Interest will resume on student loans under the federal SAVE repayment plan from August 1, a move that could result in an average additional cost of $3,500 (approximately ₹2.9 lakh) annually per borrower, according to recent estimates.The decision comes amid ongoing legal battles over President Joe Biden’s flagship student loan relief initiative, the SAVE (Saving on a Valuable Education) plan, which had temporarily paused both payments and interest accrual for eligible borrowers since mid-2023.

The Education Department now cites a February 2025 court ruling as the reason it can no longer legally suspend interest, even as repayments remain on hold.

7.84 million borrowers affected

According to official figures, the interest resumption will impact approximately 7.84 million borrowers currently enrolled in the SAVE plan. While monthly repayments are still paused under an extended forbearance, interest will begin accumulating from August, potentially adding to the long-term debt load of affected individuals.

An analysis released by the Student Borrower Protection Center (SBPC) estimates that the change could lead to an aggregate increase of $27 million in interest charges over a 12-month period. The average borrower under the SAVE plan, which was designed to provide income-driven relief, could now be charged around $300 per month in interest—a sharp deviation from the original framework of the programme.

Legal and administrative bottlenecks

The Education Department has maintained that the February ruling invalidated the legal basis it used to pause interest accrual.

As a result, it has begun notifying borrowers of the change. However, critics argue that no court order explicitly mandates the resumption of interest, and that the Department retains discretion under federal law to waive interest during periods of suspension.Compounding the issue is the administrative backlog facing the Department. According to court filings, nearly 1.5 million applications for alternative income-driven repayment (IDR) plans remain unprocessed.

Borrowers have been advised to consider switching from the SAVE plan to other IDR plans such as Income-Based Repayment (IBR), Pay As You Earn (PAYE), or Income-Contingent Repayment (ICR) to potentially avoid interest accrual.

However, processing delays could leave many borrowers in limbo for weeks or even months.

Wider implications for international students

The policy change has implications for international students, including thousands of Indian-origin graduates in the US who rely on federal aid and income-driven repayment options.

Many of these borrowers enrolled in the SAVE plan expecting extended relief and predictable repayment terms. The sudden shift in interest accrual conditions has added uncertainty to financial planning for both current and prospective students.The development marks a fresh chapter in the prolonged battle over student loan relief in the United States. The Biden administration’s broader student debt cancellation efforts have faced repeated legal challenges from Republican-led states, stalling or reversing key components of reform.

The SAVE plan, once heralded as a game-changing safety net for low- and middle-income borrowers, now faces an uncertain future as litigation continues.

What lies ahead

While loan repayments under the SAVE plan are not expected to resume until at least December 2025, the resumption of interest could sharply increase the financial burden on borrowers in the interim. Advocacy groups have called for immediate administrative relief and faster processing of repayment plan transitions, but the Department’s legal position remains unchanged as of now.Borrowers are advised to monitor official updates, review their loan status, and explore alternative plans promptly. As legal challenges continue and administrative delays persist, millions remain caught in a widening student debt crisis with no immediate resolution in sight.