Special Announcement:
Today, July 9, 2025, the Department of Education announced that borrowers who are in the SAVE Plan forbearance will begin accruing interest on August 1st. They are encouraging borrowers to apply for another repayment plan. Currently, borrowers can apply for ICR, PAYE, and IBR income-driven plans. Please note that loan servicers have a significant backlog of applications. Use studentaid.gov to submit any repayment plan change requests and follow your application closely.
Q: Does this mean the SAVE forbearance is ending?
A: Not really. The zero percent interest rate status is ending. While no payment is due, you’ll be charged interest and not earn any progress towards forgiveness if you remain in the SAVE forbearance after August 1st. That’s not a great trade-off.
Q: Should I switch out of the SAVE forbearance now?
A: Probably. Seeing your balance increase with no credit towards forgiveness is not a great position to be in. However, student loan forgiveness significantly discounts the interest you pay, and forgiveness pathways are available.
For example, let’s say you rack up $10,000 of interest in the SAVE forbearance and reach student loan forgiveness down the line using IBR or the new Repayment Assistance Program (RAP). Forgiven debt is subject to federal (and state) income taxes. If you pay 30% tax on the forgiven balance, then the interest you accrue during the forbearance will cost you about $3,000 (0.3*10,000). But watching your student loan balance is no fun, so that can be a hard equation to swallow.
Q: Which repayment plan should you choose if you do switch?
A: It depends on your Income-Driven Repayment (IDR) Profile:
- IDR Profile 1 (eligible for IBR 2014, PAYE, and ICR), then choose PAYE.
- IDR Profile 2 (eligible for PAYE, IBR 2009, and ICR), then choose PAYE.
- IDR Profile 3 (eligible for IBR 2009 and ICR), then choose IBR 2009 if your student debt balance exceeds your income. Consider ICR if your income exceeds your student debt balance.
Read the PAYE vs. IBR 2014 post for more detailed information on choosing another repayment plan.
Expert Tip: Know Your IDR Profile
- Grab a student aid data file from studentaid.gov;
- Upload it to the VIN Foundation My Student Loans tool;
- Review the IDR Eligibility tab
Q: Why choose PAYE instead of IBR 2014? Isn’t PAYE going to be eliminated?
Yes, PAYE is now scheduled to be eliminated on July 1, 2028. However, you can use it to make forgiveness-eligible payments until then and prevent any unpaid interest you have from capitalizing (being added to your principal balance) when you eventually switch from PAYE to IBR or the new RAP.
If you switch from SAVE to IBR now, then leave IBR for the new RAP plan when it becomes available July 1, 2026, your unpaid interest will capitalize. The higher your principal balance, the more interest you accrue. The more interest you accrue, the higher your repayment costs.
When possible, we try to avoid unpaid interest capitalization. For those who are eligible (IDR Profiles 1 & 2), PAYE serves as a strategic bridge to get you to either IBR 2014 or RAP later.
Q: What happens if I choose not to switch from the SAVE forbearance?
You will accrue interest on the principal balance in your unpaid interest account. Your unpaid interest is separate from your principal balance. You are not charged additional interest on your unpaid interest unless it capitalizes (gets added to your principal).
You will also not earn forgiveness credit while your unpaid interest balance grows.
Q: What if I don’t want to switch to another income-driven plan?
You can also switch to a time-driven repayment option. Depending on your student loan balance and loan types, you can choose a fixed or graduated 10-year plan, an extended or graduated 25-year plan, or a 30-year fixed or graduated plan if your loans are consolidated.
Time-driven plan minimum payments are calculated from your total student loan balance and your remaining time in repayment. For those with student debt balances greater than their income, a time-driven payment will most likely be higher compared to an IDR monthly payment. Time-driven plan payments are also not eligible for forgiveness credit.
If you’re going to make student loan payments, it’s better to earn forgiveness credit just in case you need it later.
Q: Need help? I know I do 🤯
Have more questions? Post a comment below or email [email protected].
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Dr. Tony Bartels graduated in 2012 from the Colorado State University combined MBA/DVM program and is an employee of the Veterinary Information Network (VIN) and a VIN Foundation Board member. He and his wife have more than $400,000 in veterinary-school debt that they manage using federal income-driven repayment plans. By necessity (and now obsession), his professional activities include researching and speaking on veterinary-student debt, providing guidance to colleagues on loan-repayment strategies and contributing to VIN Foundation initiatives.
1 thought on “Student Loans in SAVE Plan Will Start Accruing Interest August 1st”
So what would be a reason for someone to choose to stay on the SAVE plan?