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(From the Financial Literacy Blog) — Recent changes to the SAVE Plan—short for Saving on a Valuable Education—are affecting student loan payments for many Americans working to pay off their continued education. Initially launched in 2023, the SAVE Plan was intended to make federal student loan payments more manageable by replacing a flat monthly bill with payments based on how much an individual earned and how many people they supported. One big perk came along with the Plan: interest would not accrue if regular payments were made. For those with smaller incomes, this drastically reduced the amount owed every month in student loans.
Effective August 1, 2025, interest for federal student loans resumed for borrowers enrolled in the SAVE Plan. The average SAVE borrower may now incur approximately $3,500 in additional interest per year—about $300 per month—compared to if the pause on interest had remained in-effect. These accrued interest charges will grow loan balances for nearly eight million people, which will increase the amount due when a regular payment schedule resumes. Between inflation and rising unemployment rates, staying on top of finances is becoming more challenging for many Americans. Now is a great time for borrowers to closely look at their budgets and begin considering how these added costs will be managed.
The One Big Beautiful Bill phases the SAVE Plan out by 2028. If you are a borrower participating in this program, you’ll need to explore other options such as an Income‑Based Repayment (IBR) or a new Repayment Assistance Plan (RAP), which is being implemented. If you can’t afford to pay your monthly student loan bills under a different plan, despite all budgeting efforts, you should at least try to pay the interest now accruing on your SAVE payment each month––just to keep your balance from ballooning. Borrowers can use the Federal Student Aid Loan Simulator to estimate potential payments under IBR or RAP and determine which alternative best meets their unique needs.
Bottom line, it is extremely important for borrowers to stay on top of any emails or letters from their loan servicer—and to make sure their contact and financial info is up to date so they don’t miss anything important. By setting yourself up for financial success now and understanding all the impacts added interest will have on you and your household, you can ensure strong financial well-being moving forward.
As always, your local credit union is available to help guide you through budgeting, student loan payments, and options for a strong future.