U.S. Secretary of Education Linda McMahon explained why the Trump administration will soon resume interest charges for nearly 8 million student loan borrowers, saying former President Joe Biden left borrowers in legal limbo when he couldn’t deliver on the controversial campaign promise.
“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,” McMahon said in a statement first obtained by Fox News Digital.
“Since day one of the Trump Administration, we’ve focused on strengthening the student loan portfolio and simplifying repayment to better serve borrowers,” the secretary added. “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. Borrowers in SAVE cannot access important loan benefits and cannot make progress toward loan discharge programs authorized by Congress.”
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The Department of Education announced Wednesday it “will take an additional step to bring fiscal responsibility to the federal student loan portfolio by restarting interest accrual for borrowers with loans in the illegal Saving on a Valuable Education (SAVE) Plan on August 1, 2025.”
Before interest rates start accruing on Aug. 1, the department said borrowers are encouraged to compare repayment plans using its loan simulator to estimate monthly payments, check eligibility and select the most suitable plan. Individuals who previously applied for Income-Based Repayment (IBR), Pay As You Earn (PAYE) or Income-Contingent Repayment (ICR) are not required to reapply.
The Department of Education said it will begin outreach on Thursday to 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.”
As of late June, the department said it had received nearly $282 million in collections on defaulted federal student loans through voluntary payments and the offset program administered by the U.S. Department of Treasury. The department also said it has not thus far withheld monthly federal benefits, such as Social Security payments, since restarting collections.
President Donald Trump’s “big, beautiful bill,” which he signed into law on the Fourth of July, creates a new repayment assistance plan, expected to launch by July 1, 2026.
Because enrollment in PAYE and ICR Plans may be limited due to the law and ongoing legal challenges, the department encourages borrowers to consider switching to the Income-Based Repayment (IBR) Plan – authorized under the Higher Education Act – as a temporary and safer alternative.
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The decision comes after the 8th U.S. Circuit Court of Appeals in February issued an injunction blocking the implementation of the SAVE Plan, including the Biden administration’s action to put SAVE borrowers in a zero percent interest rate status. The court ruled that the plan’s provisions, including reducing monthly payments to as low as zero for some borrowers and forgiving remaining balances after 10 years for smaller loans, exceeded what Congress authorized under the Higher Education Act.
The Department of Education on Wednesday said “millions of borrowers enrolled in the Biden Administration’s SAVE Plan based on the false promise of loan cancellation and zero monthly payments, despite multiple federal courts striking down such policies.”
“The Biden administration also invented a zero-percent ‘litigation forbearance,’ forcing taxpayers to foot the bill and leaving borrowers without clear direction on how to legally repay their loans,” according to the department. The Trump administration, meanwhile, vowed to “support borrowers in selecting a new, legal repayment plan that best fits their needs and helps them get on a sustainable financial path while protecting American taxpayers.”
In June 2023, the U.S. Supreme Court ruled that the Biden administration did not have the authority under the HEROES Act of 2003 to cancel up to $10,000 in federal student loans for individuals earning less than $125,000 annually or households earning less than $250,000, as well as an additional $10,000 for Pell Grant recipient.
The court said such widespread debt cancellation required congressional approval. Despite that ruling in Biden v. Nebraska, the Biden administration announced the SAVE plan just weeks later “in a renewed effort to implement illegal student loan bailouts on the backs of hardworking American taxpayers,” the Department of Education said Wednesday.
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The Department of Education said it resumed collections on May 5 after a five-year hiatus and has emailed more than 23 million borrowers “reminding them of their legal obligation to repay their loans as well as the benefits of making regular progress toward repayment.”
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