Millions of federal student loan borrowers are being pushed to choose a new repayment plan as the Biden-era SAVE program is dismantled, leaving about seven million enrollees to move into other options or risk being automatically placed into a standard repayment plan. Beginning July 1, federal loan servicers are expected to begin notifying SAVE borrowers about deadlines and next steps. The changes come after SAVE was challenged in court by Republican-led states, which froze payments for many borrowers for nearly two years and left the program in legal limbo.
Under the new system, borrowers who take no action may be moved into the existing standard plan, which usually means fixed monthly payments over 10 years and can be more expensive than income-driven options. A new tiered standard plan will also be available for borrowers who take out new federal loans after July 1, with repayment length based on the size of the balance. The government says borrowers should be proactive, since automatic placement could lead to higher bills.
Most borrowers leaving SAVE will likely compare two main income-driven options: Income-Based Repayment, or IBR, and the new Repayment Assistance Plan, or RAP, which starts July 1. IBR generally sets payments at 10 percent of discretionary income for borrowers with newer loans, with forgiveness after 20 years; older loans follow a 15 percent, 25-year structure. RAP is designed to function like an income-based plan, but its payments range from 1 percent to 10 percent of adjusted gross income depending on earnings, and its repayment term can last up to 30 years. RAP also offers protections such as waived interest when payments do not cover it and a guarantee that principal will fall by up to $50 per month.
Still, RAP has drawbacks. It is not adjusted for inflation, which could push borrowers into higher payment tiers over time even if their income only keeps pace with rising prices. Small raises can also trigger noticeable jumps in monthly payments because of RAP’s step-based structure. Borrowers with very low incomes may do better under IBR, while middle-income borrowers with manageable balances may find RAP more suitable.
Borrowers should be careful before switching, especially because RAP payments will not count toward forgiveness under other income-driven plans if they later change plans. RAP payments do count toward Public Service Loan Forgiveness, however. For PSLF participants, the lowest monthly payment is usually the best choice, since they typically need only about 10 years of qualifying payments.
The article also warns against consolidation unless necessary. Consolidating loans can erase existing repayment credits and limit borrowers to the new RAP and tiered standard plans if done after July 1. Borrowers already in PAYE or Income-Contingent Repayment will not need to act immediately, but those plans will be phased out by July 2028. Parent PLUS borrowers face special rules, with many losing access to income-driven protections if they take out new federal loans after July 1.
