The largest restructuring of federal student loan repayment in a generation began July 1, with nearly 7 million borrowers who were enrolled in the now-defunct Saving on a Valuable Education plan beginning to receive notices giving them 90 days to choose a new repayment plan. On top of that, the Treasury Department has permanently resumed involuntary wage garnishments for defaulted borrowers as it takes over the federal loan portfolio from the Department of Education.
As of March 31, 2.97 million federal borrowers were delinquent and 9.57 million were in default, according to Department of Education data. If repayment struggles persist, the combined total could reach 12.54 million by the end of 2026, a figure that would ripple through consumer credit scores, household budgets, and recovery rates on every other type of debt in collectors’ portfolios.
The SAVE plan, launched by the Biden administration in 2023, was terminated following a federal court ruling and provisions of the One Big Beautiful Bill Act. Borrowers who do not select a new plan within 90 days of notification will likely be placed automatically into the Standard Plan, which does not consider income and often carries the highest monthly payments. New York Attorney General Letitia James issued a consumer alert last week urging borrowers to act before the deadline rather than wait to be defaulted into a plan they cannot afford.
Borrowers whose loans were disbursed before July 1, 2026, retain access to income-based repayment, Pay As You Earn, and income-contingent repayment, though PAYE and ICR will sunset by July 2028. New borrowers face just two options: a tiered standard plan with fixed terms of 10 to 25 years, or the new Repayment Assistance Plan, which sets payments at 1% to 10% of adjusted gross income with a $10 monthly floor and forgiveness after 30 years.
Advocates are bracing for a rocky transition. A survey from the Institute for College Access & Success found 48% of borrowers reported long wait times when contacting servicers, and many borrowers exiting SAVE will be making payments for the first time in two years. To soften the landing, the Education Department is offering a temporary 1-percentage-point interest rate reduction for borrowers who enroll in autopay between July 1 and September 30.
The message from Washington is unambiguous. As Under Secretary of Education Nicholas Kent put it, not paying is no longer an option. For an industry that collects on student loans and watches consumer financial health across every asset class, the next 90 days will be telling.
