How will Trump’s new spending bill affect student loans?
President Donald Trump’s newly passed spending bill is set to overhaul the federal student loan system.
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Millions of student loan borrowers who were registered in Biden-era repayment plans will soon see their monthly payments increase after the current administration resumed interest on August 1.
Nearly 8 million borrowers on savings in the Precious Education (SAVE) plan are collecting interest on their loans for the first time since former President Joe Biden placed the group in generously in July 2024 to suspend both monthly payments and interest.
“Save Plan borrowers will see an increase in their loan balances as they begin to accrue interest on August 1,” the Ministry of Education said in an announcement of the July 9 change. “Once the Farnance of a Save Plan is finished, the borrower is responsible for monthly payments, including the favorable interest and its principal.”
Save Plan borrowers start to see interest accrue on their loans after a year or more bailout, but they generally remain tolerant of monthly minimum payments. However, a recent analysis from the Student Borrower Protection Center, a debt-focused advocacy group, shows that interest alone can cost a typical borrower hundreds of dollars a month.
The department said the move was part of an effort to comply with the injunction issued in April, but the decision they cited does not call interest-free tolerance, particularly illegal.
What should you know about this:
What is a save plan?
The program, launched by the Biden administration in 2023, is designed to provide more generous terms than previous income-based repayment plans, with some borrowers having reduced monthly payments to $0.
It also offered debt relief for some small loans in just 10 years, compared to a 20- or 25-year timeline under previous rules. However, the program was quickly challenged in court and caught up in a series of rulings regarding the administration’s student debt relief plan. In 2024, two courts issued an injunction against the save plan, effectively blocking it, leading the Biden administration to place saving plan borrowers in interest-free tolerance as the legal battle continued.
Like several other student loan programs, the Save Plan has been attacked by President Donald Trump’s Department of Education and has begun to actively review the federal student loan system and aggressive collection policies.
The department said in early July it began direct outreach to millions of savings company borrowers on reopening interest rates, including instructions on how to move to what is called a “legal repayment plan.”
How much will your payment increase?
A July analysis from the debt-focused advocacy group Student Borrower Protection Center shows that reopening interest rates could cost around $300 a month for a typical borrower in a plan. This amounts to interest costs of over $3,500 per year.
The Centre said it estimates more than 40% of save plan borrowers are less than 225% of the federal poverty line.
Borrowers can see how reopening loan interest will affect payments by going to a loan simulator on the Federal Student Aid website.
What is a repayment support plan?
Education Secretary Linda McMahon urged the relief borrowers to move quickly towards alternative repayment plans.
“For many years, the Biden administration has used what is called “loan allowance,” but has committed to winning votes, but federal courts have repeatedly ruled that these actions were illegal,” she said in a July 9 statement.
McMahon said the department is urging all borrowers of the retention plan to move to a “legally compliant” repayment plan, pointing to RAP, the administration’s repayment support plan that will replace existing income-based repayment plans in 2026.
Discretionary income saves you on monthly payments. In comparison, RAP is based on gross income payments, and all borrowers, even those who do not report income, must make a minimum monthly payment of at least $10.
The new plan is part of a series of student loan changes included in Trump’s massive tax and spending bills, which signed the law on July 4th. Most of the overhauls will go into effect on July 1, 2026, including new restrictions in the amounts students and their families can borrow, as well as the new eligibility criteria for PelGrant, which helps low-incom undergraduate students.
This story has been updated to clarify references to preserve the tolerance of plan borrowers.
Contributors: Reuters; Zachary Schermele, USA Today.
Kathryn Palmer is a national trending news reporter for USA Today. You can contact her kapalmer@usatoday.com And with x @Kathrynplmr.
