How To Refinance Student Loans Amid Backlogs For 643,000 Borrowers, Looming SAVE Plan Deadline

Seven million student loan borrowers enrolled in the now-defunct SAVE plan will begin receiving 90-day notices from their loan servicers starting 1 July, forcing them to pick a new repayment plan or face automatic enrolment in the standard option by late September, The College Investor reported.

The deadline lands at a particularly difficult moment. A court filing reviewed by CNBC shows that more than 643,000 federal borrowers are already stuck in a processing queue. Of those, roughly 554,000 are waiting for the Education Department to approve their transfer into an income-driven repayment (IDR) plan. Close to 90,000 others have pending applications for Public Service Loan Forgiveness (PSLF) buyback, a programme that allows qualifying public sector workers to retroactively pay for missed months and accelerate their path to debt cancellation.

The department did process a record 424,583 IDR applications in March and discharged loans for 21,200 borrowers under the terms of their repayment plans. Those were the first IDR cancellations since December, ending a two-month stretch in which the government approved zero discharges, according to data compiled by The College Investor.

SAVE Plan Borrowers Face Tight Window To Switch

The Biden administration had launched the Saving on a Valuable Education (SAVE) plan in 2023, billing it as the most affordable income-driven repayment option available. The US Court of Appeals for the Eighth Circuit struck it down earlier this year after Republican-led legal challenges.

Borrowers in the programme have not been required to make payments since July 2024, when a court-ordered forbearance took effect. But interest has been accumulating on their balances since 1 August 2025. For those who owed $0 (£0) a month under SAVE - roughly half of all enrollees - the jump to standard repayment could be severe, potentially adding hundreds of dollars to their monthly outgoings overnight.

The Education Department has started emailing affected borrowers, urging them to apply for a new plan. Those who have been in SAVE the longest will receive formal servicer notices first. Anyone who fails to choose a plan within 90 days of receiving that notice will be defaulted into the standard repayment track, with non-payment from that point triggering delinquency proceedings.

Higher education expert Mark Kantrowitz has estimated that roughly 9 million Americans are already in default on student debt. Outstanding federal student loan balances across the country total more than $1.6 trillion (£1.2 trillion), owed by upwards of 42 million people, according to the Congressional Research Service.

What Repayment And Refinancing Options Remain

Most experts currently point borrowers toward Income-Based Repayment (IBR), which limits monthly bills to 10 per cent of discretionary income and offers forgiveness after 20 or 25 years. Kantrowitz has calculated that very low-income borrowers could pay as little as $13 (£10) a month under the plan.

From 1 July, a new federal option called the Repayment Assistance Plan (RAP) will also become available. Payments under RAP will run between 1 and 10 per cent of a borrower's earnings, with a floor of $10 (£8) a month. Forgiveness, however, does not arrive until after 30 years.

'Most borrowers will be better off in IBR' than in RAP, Kantrowitz told CNBC, citing the shorter forgiveness timeline.

Two older income-driven options - Pay As You Earn (PAYE) and Income-Contingent Repayment (ICR) - are still open to existing borrowers but will be phased out by July 2028 under the One Big Beautiful Bill Act.

Refinancing through a private lender is a separate path. It can lower interest rates and shorten repayment timelines for borrowers with strong credit. The trade-off is permanent: refinancing federal loans strips away access to IDR plans, PSLF and government forbearance programmes.

'Unless a borrower qualifies for a significantly lower fixed interest rate through refinancing, I would stay put in the federal system for now,' accredited financial counsellor Colleen Salchow told US News.

A recent survey by The Institute for College Access & Success and Data for Progress found that 42 per cent of federal borrowers said their monthly student loan payments made it harder to afford basic expenses, including food and rent.