Interest begins accruing again today for the nearly eight million student loan borrowers enrolled in the income-driven repayment plan known as Saving on a Valuable Education (SAVE). At least 116,200 Kentuckians — or 19% of people in the state with student loans — will see their balances immediately start growing at the same time that inflation and rising costs are making it harder for people to provide for their families.
According to an estimate by the Student Borrower Protection Center, a typical borrower affected by this policy change will incur more than $3,500 in unnecessary interest charges per year, or roughly $300 per month.
SAVE was launched in August 2023 to address exorbitantly high rates of student loan default by providing the most affordable income driven repayment program in history. The program is designed to provide greater relief than other plans by addressing shortcomings such as the overwhelming accrual of interest. SAVE subsidizes any unpaid interest that remains after a borrower makes a payment so balances don’t increase over time. The program also expands eligibility to qualify for payments of $0 per month and offers a shorter path to student loan forgiveness for some.
Student loan borrowers enrolled in SAVE have been in limbo for a year, when their loans were placed in interest-free forbearance through a temporary federal court injunction blocking the program, which was affirmed and expanded in February. Earlier this month, the U.S. Department of Education announced its decision to abruptly restart interest for the loans on August 1.
The restarting of interest for SAVE loans is happening at the same time the federal reconciliation legislation permanently eliminates SAVE and shrinks income-driven repayment options for people who have to take out loans to afford college. These policy changes will worsen the student loan crisis in Kentucky, where 20% of borrowers participate in an income-driven repayment plan, covering 32% of total student debt in the state.
