U.S. Settles Lawsuit as SAVE Student Loan Plan Nears End

The U.S. Department of Education has reached a proposed agreement to end the SAVE student loan plan. The announcement followed months of uncertainty for borrowers who relied on the programme for flexible repayment. The SAVE plan offered low monthly payments and faster forgiveness. Therefore, it quickly became the most generous income-driven option.
Republican attorneys general, led by Missouri, called the plan too costly. Their lawsuit pushed the issue into court and left millions in limbo. During this period, borrowers were not required to make payments. However, interest started building again in August, adding to financial pressure.
Officials say the settlement will close the legal battle by closing the plan itself. The department will stop enrolling new borrowers, deny pending applications, and shift roughly seven million SAVE users into other repayment plans. These plans are also changing, which adds another layer of uncertainty.

Borrowers Face Major Changes in Repayment Options

The Education Department says borrowers will get limited time to choose a new legal plan. They must pick either a fixed payment option or an income-based plan. In addition, new plans created under the One Big Beautiful Bill Act will launch in July 2026. These include a revised standard option and a new income-driven Repayment Assistance Plan.
Experts warn the transition will be challenging. Loan servicers expect confusion because many borrowers have not made payments for years. As a result, support lines may be overwhelmed.
Advocates fear that ending the SAVE student loan plan will raise costs for struggling borrowers. Recent data shows that more than 12 million people are already behind on payments. Therefore, the settlement arrives at a difficult time, with many at risk of default and growing financial hardship.