The Party's Over: Interest Returns to SAVE Forbearance August 1st
Just when we thought we had a handle on the student loan landscape, the Department of Education threw us another curveball.
The Dept. of Ed announced that starting August 1st, 2025, interest will begin accruing again on SAVE plan forbearance – ending what has been essentially a free ride for borrowers stuck in this limbo.
If you're one of the many optometrists currently on SAVE forbearance, it's time to make some decisions about your next move.
Two Separate Changes Happening at Once
There's been some confusion on whether this was connected to the recently passed law. It's important to understand that we're dealing with two distinct developments:
First, the One Big Beautiful Bill Act (let's call it O3B for short) made sweeping changes to income-driven repayment plans. Starting July 1st, 2026, current plans like ICR, Pay As You Earn, and SAVE will no longer be available, replaced by a modified IBR and the new Repayment Assistance Plan (RAP).
Currently graduated ODs that won't take loans (or consolidate) after July 1st, 2026, will have until July 1, 2028, to make the transition. See last week's newsletters for a deeper dive on the tax and student loan changes from the Bill.
Second, and completely separate from the new law, the Department of Education announced that interest will restart on SAVE forbearances beginning August 1st.
The forbearance itself continues - you still won't make payments - at least, until the courts finally rule on the fate of SAVE. But your balance will start growing again due to accruing interest.
Unless you cannot afford payments on another plan - which may be possible, as many ODs haven't had to recertify income for a few years - there isn't a compelling reason at this point to remain on the SAVE forbearance.
What Should You Do If You're On SAVE Forbearance?
The answer depends on your repayment strategy, but for most optometrists, staying put no longer makes sense.
If You're Planning to Pay Off Your Loans
The interest-free party is officially over. You'll need to decide whether to:
- Move to a standard federal repayment plan
- Refinance to private loans (if you can get meaningfully better rates). Use caution - this is a one-way road out of the federal system and it's protections/flexibility. You must be certain it makes sense.
- Switch to an available income-driven plan
Since you're planning to pay everything back anyway, the specific IDR plan matters less - focus on minimizing your total interest costs.
If You're Pursuing Loan Forgiveness
Whether you're going for Public Service Loan Forgiveness (PSLF) or planning for taxable forgiveness after 20-30 years, there's really no reason to stay on SAVE forbearance now that interest is returning.
Your best move is likely switching to the most advantageous IDR plan available to you:
For PSLF candidates:
While it's possible to stay on SAVE and rely on the PSLF buyback, the Dept. of Ed may end up asking for tax returns for these months since the forbearance period was more than a year.
I'm more likely to suggest to a client to switch plans and start making qualifying payments.
Possible options are:
- If you were a new borrower after July 1st, 2014, the new version of IBR offers the same 10% payment calculation as Pay As You Earn.
- If you were a new borrower after October 2007 and took another loan in 2011, Pay As You Earn is probably your best option for the next three years. That is, until the 7/1/2028 deadline to switch to IBR or RAP.
- For everyone else that took loans before October 2007, the Old IBR is the only available option until the new RAP plan comes out next year.
For taxable forgiveness:
It's time to switch and get the payment clock starting again. The options are going to look similar here:
- New borrowers after July 1st, 2014: New IBR is easily the most appealing option, with 10% of discretionary income payment calculation and a 20-year timeline to forgiveness.
- New borrowers after October 2007: Pay As You Earn for the next three or so years.
- For all other borrowers: Old IBR is again the only available option (15% of discretionary income payment calculation, 25-year forgiveness timeline).
Important Considerations for Your Transition
Income Recertification Reality Check
It's possible you haven't had to recertify your income in years due to various forbearances from COVID and payment pauses. And depending on when you graduated, the last time you did could have been based on very low - or no - income.
When you switch plans, you'll need to show your most recently filed tax return – which could mean a significant payment increase if your income has grown substantially.
Tax Planning Opportunities
When you recertify, they will ask for your most recently filed tax return. If you filed an extension for your 2024 return, that is still your 2023 income - potentially in your favor if it's a lower-income tax year.
Remember: both IBR and the future RAP plan still allow married filing separately, keeping tax planning and filing an important part of student loan planning in the future.
The Bottom Line
For most optometrists on SAVE forbearance, August 1st marks the end of an era. With interest returning, it's time to consider transitioning to an appropriate repayment plan that aligns with your long-term strategy.
The exact right plan depends on when you first borrowed, your forgiveness timeline, and your current financial situation.
As always, these transitions involve multiple moving pieces - from tax planning to cash flow management to long-term debt strategy. If you'd like to talk through your specific situation and explore your options, I'm here to help optometrists navigate exactly these kinds of decisions.
Just reply to this email, or click the button below to schedule a conversation.
And I'll keep you informed as the student loan saga continues.
Have a great weekend!
Evon Mendrin CFP®, CSLP®
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I dive deep into the new Bill, talking through what we know about the tax and student loan changes impacting Optometry.
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