Student Debt Nightmare: New Law Hits Borrowers Hard

Money Explainers

10/7/2025

Millions of students face higher payments as interest collection resumes and the SAVE plan is dismantled. Understand the impact.
New legislation is set to add thousands in annual interest for student loan borrowers. Are you affected?
The latest policy changes are creating confusion and instability for student loan holders, jeopardizing their financial well-being.
#FinancialFuture #DebtBurden #StudentLoanCrisis

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00:00Students Among Those Most Affected by Republican Fiscal Proposal

00:04Let's talk about how recent economic shifts and legislative actions are set to significantly

00:09impact students, particularly those with student loans. It appears that the Republican fiscal

00:14proposals, especially the one recently signed into law by President Donald Trump, will hit

00:20their pockets quite hard. Here's a breakdown of the key impacts. Resumption of student loan

00:25interest collection and the dismantling of the SAVE plan. The Department of Education has

00:30announced it will resume collecting interest on student loans for 7.7 million people enrolled

00:36in the SAVE repayment plan, effective August 1. For the past year, borrowers in the saving

00:41on a valuable education plan have benefited from an interest-free forbearance, which paused

00:46their payments while the government defended the program in court. However, starting in

00:51August, these borrowers will lose this interest subsidy even if they continue to postpone

00:56their payments. An analysis by the Student Borrower Protection Center, an advocacy group,

01:01estimates that an average borrower affected by this policy change could incur over $3,500

01:08in interest charges in a year, or roughly $300 per month. The one big beautiful bill and its

01:14direct impact on SAVE. This decision by the Department of Education comes just days after President Donald

01:20Trump signed into law the one big beautiful bill. Among other provisions, this new law eliminates the

01:27SAVE plan for new borrowers and gives current borrowers until July 2028 to exit the program.

01:33Advocacy groups view the Department's decision to end the interest subsidy as a way to hasten that

01:39departure from the program, and they state that this move will harm millions of borrowers,

01:44the legal and political context. This income-driven program was introduced by President Joe Biden

01:50in 2023. The Education Department stated that the resumption of interest collection is necessary to

01:56comply with a court injunction that blocked the SAVE repayment plan. Republican-led states challenged the

02:02program in two separate legal cases last year, accusing the Biden administration of exceeding its

02:08legal authority. Until now, the department had even told SAVE and Release that interest would not accrue

02:14on their loans during the legal limbo. An appeals court upheld a temporary ban in February, expanding

02:21it to cover the entire regulation underpinning the SAVE plan, with the department claiming this order

02:26requires an end to all elements of the plan, including the interest subsidy. However, it's important to

02:33note that there is nothing in the court order that explicitly calls for the Education Department to

02:37resume charging interest. Education Secretary Linda McMahon from the Trump administration commented that the

02:43Biden administration misused that authority to place, save and release, in interest-free forbearance,

02:50and urged borrowers to transition to a legally compliant repayment plan. Confusion and lack of

02:56stability for borrowers. After years of change and confusion stemming from the pandemic and adjustments to

03:01existing repayment plans, what borrowers really need is stability and predictability, pushing them towards

03:07higher monthly costs and potentially out of a program designed to offer financial relief.

03:12The ongoing litigation and subsequent policy shifts have resulted in a dizzying array of changes that

03:18have left borrowers confused and exhausted. Earlier this year, the department even temporarily shut down

03:25applications for all four income-driven repayment plans, citing the court injunction, leaving borrowers

03:31with only more expensive options before that decision was reversed. As Melanie Story, president and chief

03:37executive of the National Association of Student Financial Aid Administrators put it, in essence,

03:43the changes under the one big beautiful bill and the Department of Education's recent actions are set to

03:49place a significant financial burden on millions of student loan borrowers. Money expires

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