Borrowers report monthly payments more than tripling after switch

Under Secretary of Education Nicholas Kent said loan servicers began sending notifications to borrowers on a rolling basis starting July 1, with about 250,000 borrowers notified in the first wave and another wave receiving alerts this week. The department had been warning borrowers to switch out of SAVE after a federal appeals court ordered the plan ended earlier this year.

“We wanted to make sure that we had the operational support with our servicers to be able to answer the phones and respond proactively and get borrowers the answers to the questions that they may have,” Kent said in an interview with The Wall Street Journal.

The SAVE plan, created under the Biden administration, had become the most affordable option for many borrowers by calculating payments based on income and family size, in some cases cutting monthly payments to zero. A coalition of Republican-led states sued the Education Department, arguing the plan was unlawful. The appeals court ruling led to the plan’s termination.

Kent has said that student-loan borrowers should not count on sweeping debt forgiveness, extinguishing hopes that had been raised during the Biden administration.

Of the nearly one million borrowers who have already left SAVE, roughly half moved into the Income-Based Repayment plan, an older plan that caps monthly payments at 10% or 15% of discretionary income and forgives remaining balances after 20 or 25 years. IBR is no longer available for new borrowers. About 30% entered the Repayment Assistance Plan, a new streamlined plan that opened this month, which requires monthly payments of at least $10 and 30 years of payments before balances can be discharged, unless the borrower is in public service. The remaining 20% moved into two older repayment plans that will be phased out by 2028; Kent said he discouraged that option because those borrowers will need to change plans again.

Arianne Lovelace, 43, who lives in Midlothian, Texas, with her husband and four children, said her monthly payments jumped from about $400 to nearly $1,400 after she moved from SAVE to IBR last month. She said she has been making payments for nearly 15 years, but interest charges have pushed her balance to $124,000, more than she initially borrowed.

“It was a shock to see that payment went up by that much,” Lovelace said. She works at TriWest Healthcare Alliance.

The higher bill means she is putting away less for her children’s college education and pausing family vacations. Lovelace said she will also have to tell her 4-year-old daughter to choose just one extracurricular activity instead of three.

“I hate having to do that,” she said.

Lovelace made the switch in June, when the Education Department announced a temporary 1% interest-rate reduction for borrowers who enrolled in autopay. The department said more than 400,000 new borrowers have signed up for autopay.

Some borrowers are refinancing into private loans, frustrated with the repeated changes to federal student loan rules, said Danielle Kaller, a Hernando County, Florida, resident who runs two Facebook groups for borrowers.

“They’re in just absolute panic because they don’t know what to do,” said Kaller, who owes $67,000 in student loans herself.