The Trump administration’s sweeping overhaul of federal student loan repayment programs takes effect on July 1, replacing the Biden-era SAVE plan with two new income-driven repayment options and significantly tightening the pathways to loan forgiveness for most borrowers.

The changes, finalized by the Department of Education in April following a months-long rulemaking process, affect approximately 42 million Americans with outstanding federal student loan debt. Borrowers currently enrolled in the SAVE plan — which the Biden administration had created to reduce monthly payments and accelerate forgiveness timelines — will be automatically migrated to one of two new plans, depending on when they took out their loans.

The new Income-Driven Repayment Option A, intended for borrowers with undergraduate-only debt, sets monthly payments at 10 percent of discretionary income. Loans are forgiven after 20 years of qualifying payments. Option B, for borrowers with any graduate school debt, sets payments at 12 percent of discretionary income with forgiveness after 25 years. Both plans use a higher threshold for what counts as discretionary income compared to SAVE, meaning monthly payments will rise for most borrowers on the new plans.

Public Service Loan Forgiveness remains in place and was not altered by the overhaul. Borrowers in public sector jobs who make 120 qualifying payments while working for eligible employers can still have their remaining balance forgiven, regardless of which repayment plan they use.

The Department of Education estimated that the average borrower migrating from SAVE to one of the new plans would see monthly payments increase by $87 on average. Borrowers with higher balances or higher incomes will see larger increases. Several borrowers and advocacy groups took the changes to federal court in May, arguing the administration had not provided adequate notice and that the changes would cause immediate financial harm. A federal judge in the D.C. Circuit declined to block the rules from taking effect while litigation proceeded.

The administration argued that SAVE had been financially unsustainable and that its forgiveness terms had been structured in a way that encouraged borrowers to minimize payments while maximizing forgiveness, shifting costs to taxpayers. Education Secretary Linda McMahon said in a statement that the new plans provided genuine affordability protections while returning the program to fiscal responsibility.

Student borrower advocates said the framing ignored the reality that most borrowers on SAVE had enrolled because they genuinely could not afford higher payments, not as a strategic financial move. The Student Borrower Protection Center said it expected a significant increase in loan delinquencies in the third quarter as borrowers absorbed higher monthly bills. Servicer capacity to handle the migration of millions of accounts simultaneously had also been flagged as a concern by the Government Accountability Office in a report released earlier this month.

Borrowers who had been in SAVE will receive notices in their online accounts by June 27 explaining which new plan they will be placed on and what their new monthly payment will be. They can switch between Option A and B if they qualify, or request a different repayment plan including a standard 10-year plan.

The Congressional Budget Office estimated in April that the new repayment structure would reduce the projected cost of the federal student loan program by $135 billion over ten years compared to SAVE’s trajectory. The Department of Education said its loan servicing website would have a calculator available from June 25 allowing borrowers to estimate their new payment under either option.

The Servicemembers Civil Relief Act was amended alongside the overhaul to ensure active duty military members remain in a zero-interest forbearance that does not affect their PSLF eligibility during deployments.