• Interest on federal student loans under the SAVE plan resumes on August 1, impacting 7.7 million borrowers.
• Typical monthly payments could rise by around $300, totaling over $3,500 annually due to accruing interest.
• The SAVE plan is set to be phased out by July 2028, introducing new repayment plans in its place.
• Federal courts previously paused interest accrual, but borrowers must now reassess their repayment strategies.
• Borrowers are urged to explore repayment options to avoid increased debt and consider interest-only payments.

Beginning August 1, interest will start accruing again on federal student loans for those enrolled in the Saving on a Valuable Education (SAVE) repayment plan, affecting approximately 7.7 million borrowers across the United States. This change follows nearly a year-long pause in interest due to legal challenges against the program, introduced by the Biden administration. Under the current structure, while borrowers are not yet required to make monthly payments, their loan balances will begin to increase due to accruing interest, marking a significant shift in the federal student loan landscape, according to IndiaTimes and CBS News.

The Department of Education has indicated that this resumption of interest is a measure of "fiscal responsibility," emphasizing that the average borrower could see their costs rise by roughly $300 per month, totaling an estimated $3,500 annually. This financial burden is expected to heighten, with projections estimating around $27 billion in new interest charges this year alone. Recent legislation has mandated that the SAVE plan will be phased out by July 2028, with new repayment options, including the Repayment Assistance Plan (RAP) and a revised Standard Repayment Plan, being rolled out, as reported by Business Insider and Newsweek.

Borrowers currently enrolled in the SAVE plan are given the option to remain in forbearance, yet experts recommend making at least interest-only payments to mitigate the growth of their loan balances. The Department of Education has made it clear that borrowers should actively review their repayment options to find a plan that best fits their financial situation. As new plans are implemented, borrowers are urged to reassess their strategies to prevent a significant debt increase while they still have the chance to potentially adapt their repayment strategies before the SAVE program ends, highlighted in reports from CBS News, Business Insider, and IndiaTimes.

The adminstration is actively encouraging borrowers to examine alternative repayment plans, such as Income-Based Repayment (IBR), which have been cited as viable options. However, current backlogs in processing these plans pose a challenge, with nearly 2 million applications pending. As interest resumes, the combination of stalled loan forgiveness programs and these economic strains are expected to increase financial pressure on borrowers, which may raise the risk of default for many, as detailed by Newsweek and Business Insider.