Covid-era relief for SAVE borrowers expires after five years.
The last holdouts of Covid-era student loan programs will have their interest reinstated in August 2025.
In March 2020, President Donald Trump announced a pause on federal student loan payments. The economy was about to shut down (mostly due to government policy), so it seemed fair to suspend the obligation on the part of students to repay the government.
Nobody imagined that this would last as long as five years for some borrowers. During the Biden administration, generosity toward student loan holders expanded. One major addition was the SAVE Plan—a very generous repayment plan which capped interest and offered payments as low as $0 per month.
This plan was introduced in August 2023, and over the following months around 8 million people (nearly one fifth of all borrowers) registered, despite a coalition of states filing suit to block it. The courts issued an injunction around March 2024 that paused the implementation of SAVE, but did not remove those already registered. SAVE officially ended with the Trump administration’s takeover of the Department of Education. It remains unclear how borrowers will be transitioned off.
For most borrowers, interest forgiveness continued for about three and a half years, with interest accumulation restarting around September 2023. However, borrowers were given another year without penalties for non-payment (except for the interest accumulation).
Borrowers on the SAVE Plan, however, were allowed to remain in interest-free forbearance, where they still are, until next month.
This series of decisions has been extraordinarily expensive. According to the American Enterprise Institute, the interest pause alone cost the government nearly $250 billion. That means money that would offset federal debts must now come from somewhere else, likely taxpayers.
The US already has several legal pathways to loan forgiveness. Perhaps the largest is Public Service Loan Forgiveness (PSLF). If, after graduation, a borrower works for the government or a qualified non-profit, he can enroll in PSLF. After making 10 years of student loan payments, the remainder of his balance is forgiven.
Other programs, like Income-Driven Repayment (IDR), are available to those with lower incomes and require 20 to 25 years of payments.
This matters because during the Covid student loan repayment pause, the non-payments counted towards the timers of PSLF and IDR. If you were enrolled in one of these programs, you’ve essentially had three years of payments removed from your obligation. Assuming these programs continue, the Covid pause will have eradicated about 30% of PSLF debt for affected borrowers. Like the interest pause, this lower revenue for the government likely means higher taxes.
On August 1, the pause on interest will finally end for the SAVE Plan holdouts, who at this point have had their loan payments paused for about five years. What the future holds for student loans remains unclear. The Trump administration has signaled a willingness to chip away at programs like PSLF.
A CBS story on the budget reconciliation bill notes:
The new law also does away with Grad PLUS loans, which help people finance higher education degrees… Those seeking unsubsidized federal loans for professional degrees, such as law or medicine, will be restricted to $50,000 per year and a $200,000 lifetime cap. Those seeking advanced degrees in nonprofessional areas, such as history or philosophy, will be subject to an annual borrowing cap of $20,500 and a lifetime limit of $100,000.
This change likely targets the regressive nature of loan forgiveness—programs that often benefit doctors, lawyers, and others earning high salaries in the nonprofit or government world.
The cost of Covid student loan programs will be with us for a long time. But with the end of SAVE interest forbearance, it seems that Covid-era loan policies are finally behind us.
