After 5-year hiatus – and an end to pandemic-era relief on student loans during the Biden administration, the Department of Education resumed collections in May on defaulted federal student loans. Last week, the Department announced it will also restart interest accrual for borrowers with loans in the legally-challenged Saving on a Valuable Education (SAVE) Plan on August 1, 2025.
This action is necessary to comply with a federal court injunction that has blocked implementation of the SAVE Plan, including the Department’s action to put SAVE borrowers in a 0% interest rate status, according to a statement.
Millions of borrowers enrolled in the massive Biden Administration’s SAVE Plan, which has been challenged in court ever since President Biden launched the program in 2023.
Last week, the Department began direct outreach to the nearly 7.7 million borrowers enrolled in the SAVE Plan, with instructions on how to move to a legal repayment plan so borrowers can begin making qualifying payments.
“For years, the Biden Administration used so-called ‘loan forgiveness’ promises to win votes, but federal courts repeatedly ruled that those actions were unlawful. Congress designed these programs to ensure that borrowers repay their loans, yet the Biden Administration tried to illegally force taxpayers to foot the bill instead,” said U.S. Secretary of Education Linda McMahon.
“Since day one of the Trump Administration, we’ve focused on strengthening the student loan portfolio and simplifying repayment to better serve borrowers. As part of this effort, the Department urges all borrowers in the SAVE Plan to quickly transition to a legally compliant repayment plan – such as the Income-Based Repayment Plan.”
Just weeks after the Supreme Court ruled the Department cannot unilaterally waive federal student loans in Biden v. Nebraska, the Biden Administration announced the SAVE Plan.
However, in June 2024, a federal court blocked parts of the SAVE Plan. As a result, borrowers enrolled had their federal student loans placed in forbearance with a 0% interest rate. In February 2025, the Eighth Circuit Court of Appeals blocked the Biden administration’s $475 billion SAVE student loan relief plan. The court sided with the seven Republican-led states that filed a lawsuit against the U.S. Department of Education’s SAVE plan.
In April 2025, a federal district court entered an injunction to implement the Eighth Circuit decision. To comply with this injunction, the Department is instructing its federal student loan servicers to begin charging interest on impacted loans starting on August 1, 2025.
Borrowers in the SAVE Plan will see their loan balances grow when interest starts accruing on August 1. When the SAVE Plan forbearance ends, borrowers will be responsible for making monthly payments that include any accrued interest as well as their principal amounts.
The One Big Beautiful Bill Act, which was signed into law on July 4, includes a new income-based Repayment Assistance Plan that will be available to borrowers by July 1, 2026. Until then, the Department urges SAVE borrowers to consider enrolling in the Income-Based Repayment Plan authorized under the Higher Education Act until the Department can launch the Repayment Assistance Plan.
Related: 5.3M student loan borrowers now in default face wage garnishment this summer
After a five-year hiatus, the Department resumed collections on May 5 and has emailed more than 23 million borrowers reminding them of their legal obligation to repay their loans. The 30-day notices contained information that their federal benefits will be subjected to the Treasury Offset Program, which withholds government payments – including tax refunds, federal salaries and other benefits—from people with past-due debts to the government.
The Department of Education is allowed to garnish up to 15% of an employee’s paycheck without a court order if they go into default on federal student loans and can issue garnishment orders to employers to enforce collection
As of late June, the Department received nearly $282 million in collections on defaulted federal student loans through voluntary payments and the Treasury Offset program. The Department has not thus far withheld monthly federal benefits, such as Social Security payments, since restarting collections. However, the Department expects administrative wage garnishment to begin later this summer.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.