The Department of Education (ED) has agreed to a legal settlement that formally ends the SAVE repayment plan and unwinds nearly all 2023 income-driven repayment (IDR) regulations. The settlement resolves lawsuits filed by Republican-led states and forces significant restructuring of the federal repayment system, affecting more than seven million borrowers.

Key Outcomes of the Settlement

SAVE/REPAYE Enrollment and Exit

• No new borrowers will be allowed to enroll in SAVE (or REPAYE).
• All 7+ million borrowers currently in SAVE/REPAYE will be required to leave the plan.
• ED will not grant any forgiveness under SAVE/REPAYE for existing participants.
• The settlement does not specify:
  • How long borrowers have to exit the plan, or
  • What plan ED will automatically move borrowers into if they do not choose one.

Vacating the 2023 IDR Regulations

• ED agrees not to implement any of the 2023 IDR Final Rule, except for one provision:
  • The rule that counts certain deferment and forbearance periods toward IDR forgiveness (§ 685.209(k)(4)(iv)), which took effect on July 1, 2024, and was not challenged.
• All other 2023 IDR reforms—including SAVE’s reduced payments and accelerated forgiveness—will be vacated.

Required Negotiated Rulemaking

ED must conduct a full negotiated rulemaking to implement the settlement and consider:

1. Repealing the SAVE Final Rule entirely,
2. Sunsetting the original ICR plan (§ 685.209(a)(4)),
3. Sunsetting the PAYE plan (§ 685.209(a)(3)),

All consistent with the statutory framework of the One Big Beautiful Bill (OBBB).

Missouri Forgiveness-Notice Requirement

• For the next 10 years, anytime ED intends to cancel or forgive more than $10 billion in loans within a single month, ED must give Missouri 30 days’ advance notice, including:
  • The legal authority being used, and
  • The estimated forgiveness amount.

Summary

The settlement kills SAVE, eliminates nearly all 2023 IDR reforms, mandates a reconstruction of the entire repayment system, and imposes new constraints on ED’s ability to deliver large-scale loan forgiveness. Borrowers currently in SAVE will likely be able to remain in forbearance until after the rule negotiation is complete.  Eventually, borrowers in SAVE will need to change to IBR, PAYE, SAVE, or the new RAP plan.  The regulations will determine the outcome for borrowers who don’t elect to change plans, but it’s possible that ED will move borrowers in SAVE to a standard plan, as that will be easier for servicers to calculate.

With millions of SAVE borrowers likely to change plans due to settlement notifications and IDR recertification starting in January, servicers already overwhelmed with processing IDR requests will struggle to keep up.  Many believe ED may eventually be forced to once again extend IDR recertifications.   However, as of today, there has been no announcement of any extensions to the IDR anniversary date.