Interest-free student loan pause ends soon—what borrowers should do now

For millions of federal student loan borrowers, a rare period of financial calm is about to end. The Trump administration has announced that it will terminate the interest-free forbearance for borrowers enrolled in the Biden-era SAVE Plan on August 1. This decision not only restarts the accrual of interest on student debt, but also places borrowers in a situation where their next move could affect their long-term financial trajectory for years to come. The government has clarified that although borrowers will not be charged retroactive interest, any month going forward without a qualifying payment will add to their debt. That means what you choose to do in the coming weeks matters—not just to your current balance, but to your broader financial plan.

The Saving on a Valuable Education (SAVE) Plan, introduced in mid-2023 by the Biden administration, was hailed as one of the most affordable student loan repayment frameworks in history. It was designed to tie monthly payments more closely to income, offer partial interest subsidies, and ultimately provide forgiveness after a set number of years, especially for those with low balances or public service employment. However, legal challenges from GOP-led states disrupted its full implementation. To protect enrollees while litigation continued, the Education Department placed them in a temporary forbearance with a zero-percent interest rate. This provision, described by some legal experts as a “litigation pause,” was meant to serve as a stopgap. For nearly a year, borrowers in this category saw their balances remain stable—if not declining—without making active payments. It was a financial breather in a time of high inflation, rising housing costs, and unstable employment for many.

That breather is now over. According to the Department of Education’s latest statement, borrowers must resume repayment or face growing balances from interest accumulation. The Trump administration has argued that the Department exceeded its statutory authority by placing borrowers into an interest-free status without explicit congressional approval. The new announcement reflects a broader rollback of Biden-era student debt policies. More significantly, it shifts the burden of decision-making back onto borrowers, many of whom had understandably paused their repayment planning during the legal uncertainty.

What makes this moment particularly difficult is the limited menu of repayment options now available. With the SAVE Plan halted in court and its protections suspended, borrowers looking for income-driven repayment solutions currently have only one main option: the traditional Income-Based Repayment (IBR) plan. While IBR also limits payments based on a borrower’s discretionary income, its terms are less favorable than those under SAVE. For example, IBR does not subsidize unpaid interest to the same extent and typically requires longer timelines for loan forgiveness. In addition, because many borrowers enrolled in SAVE with the hope of accelerated forgiveness or partial interest cancellation, shifting to IBR may feel like a financial step backward. Yet for many, it is the only viable alternative at the moment.

For those wondering whether they should wait for the proposed Repayment Assistance Plan (RAP) in President Trump’s “One Big Beautiful Bill” to take effect, it’s important to note that the program won’t be operational until next year. That means the coming months—between August and RAP’s rollout—will be a liminal zone where interest accumulates, and borrowers must either actively make payments or allow their balances to grow unchecked. This in-between period may be the most financially risky stretch for those who delay action. With no automatic protection from interest, the cost of passivity is now real and compounding.

What can borrowers do in the meantime? First, it’s important to understand your actual monthly interest cost, not just your total loan balance. This means contacting your loan servicer, accessing your loan portal, or using the Education Department’s calculators to estimate how much interest your loans will accrue each month. If you can afford to cover that interest—even if not the full payment—it may help you stabilize your balance and prevent further growth. Some servicers may allow partial payments to be applied toward interest, though you’ll need to confirm how these payments are processed to avoid confusion or misapplication.

For borrowers who are working but earning moderate incomes, enrolling in the existing IBR plan might provide the most structured path forward. Payments are tied to income, and while forgiveness may take longer to achieve, the framework can offer predictability during a time of uncertainty. If your income has changed recently, remember to recertify it with your servicer to ensure your payments are calculated accurately. Some borrowers may find that, even under IBR, their required payment is still manageable—or potentially even zero—depending on household size and income level.

If you are in a period of financial instability—due to job loss, caregiving responsibilities, or other disruptions—you can explore deferment or forbearance options. These may allow you to pause payments temporarily, though unlike the previous SAVE-related forbearance, interest will now accrue. This tradeoff means that borrowers should use deferment strategically, ideally while working toward greater income stability or during a brief transitional phase. The key is to avoid viewing deferment as a long-term solution; rather, treat it as a temporary buffer while you design a more sustainable repayment plan.

Some borrowers may consider aggressive repayment strategies, especially those who have stable income and relatively low remaining balances. If you are close to the finish line—within three to five years of payoff—it may make sense to increase your payments now and shorten your repayment window before new policy changes are enacted. This path is not right for everyone, especially if it compromises your emergency fund, retirement savings, or essential living costs. But for those with capacity, it can provide clarity and closure at a time when policy remains in flux.

Financially speaking, this is not just a change in policy. It is a shift in debt psychology. Over the past year, many borrowers came to see their loans as frozen in time—still present, but not pressing. That psychological space allowed some to prioritize saving for a home, investing in retirement accounts, or recovering from job market turbulence. The return of interest brings the loans back to the forefront of financial planning, not as a crisis, but as a renewed line item that requires attention, alignment, and consistency.

One of the most overlooked aspects of this transition is how it may affect borrowers’ future borrowing potential, particularly those who plan to apply for a mortgage, auto loan, or business credit within the next one to two years. Even if loan balances are not yet increasing significantly, missed or paused payments can affect your debt-to-income ratio and raise flags for lenders evaluating your credit profile. Taking a proactive step—such as enrolling in IBR or making interest-only payments—can demonstrate financial responsibility and help preserve your creditworthiness during this uncertain phase.

Another important consideration is forgiveness tracking. If you were enrolled in SAVE and counting on time-based or Public Service Loan Forgiveness (PSLF) milestones, you’ll need to ensure your account remains in good standing during the pause. Contact your servicer to understand whether your months in SAVE forbearance will count toward forgiveness, and whether switching to IBR resets or continues your eligibility. This area is especially nuanced and may differ depending on loan type, employment certification, and past forbearance history. A missed month now could extend your forgiveness horizon by years—so clarity is critical.

From a financial planner’s lens, this moment is less about finding a perfect repayment plan and more about protecting your long-term financial structure. The decisions you make in the next six months won’t just affect your student loan statement—they will shape your savings rate, your housing flexibility, and even your stress levels. That’s why the most strategic borrowers aren’t necessarily those who pay off their debt the fastest, but those who integrate their student loan payments into a broader, resilient financial system. That means planning monthly contributions you can sustain, preserving savings buffers for emergencies, and ensuring your repayment plan doesn’t compromise your future wealth-building goals.

If all of this feels overwhelming, remember that clarity compounds. The more visibility you create around your loan numbers, payment plan, and monthly capacity, the easier it becomes to adjust. And adjustment—not perfection—is the goal in moments like this. Your loan servicer can’t forecast your career path, but they can help you enroll in a plan that prevents interest spikes. Your friends can’t predict court rulings, but you can support each other in staying organized and informed. Your financial plan doesn’t need to be flawless—it just needs to be responsive, informed, and consistent.

In closing, the end of the interest-free SAVE forbearance is not just an administrative update. It’s a turning point in the relationship many borrowers have with their student loans. For some, it will be the nudge to re-engage. For others, it may feel like yet another policy setback. But in both cases, the opportunity lies in the same place: choosing your next step consciously. Whether that means enrolling in IBR, making partial payments, or speaking with a counselor about deferment, taking action now will protect you later. The interest clock may restart on August 1—but your plan can restart today.