Crucial Update: Navigating the SAVE Plan for Student Loan Forgiveness in Late 2025

Updated on October 2, 2025

By Alexander Hernandez, J.D., Professor, and Author of Consumer Bankruptcy Law (Routledge).

The landscape of federal student loan repayment and forgiveness is in constant motion, driven by policy shifts under the Trump administration, court challenges, and regulatory changes. For borrowers, this means the most up-to-date information is essential.

While the Saving on a Valuable Education (SAVE) Plan remains a key Income-Driven Repayment (IDR) option, recent court rulings have significantly impacted its status and benefits.

KEY POINTS & Immediate Borrower Action

• Lawsuits and Forbearance: Due to multiple federal court injunctions (the first in July 2024, the second in February 2025), key features of the SAVE Plan are blocked, and most borrowers enrolled in SAVE have been placed in an administrative forbearance.
• Interest Accrual Restarted: Crucially, interest on loans in the SAVE administrative forbearance began accruing again on August 1, 2025.
• Loan Forgiveness Paused: Forgiveness under SAVE and most other IDR plans is currently paused pending court decisions. Progress toward Public Service Loan Forgiveness (PSLF) or IDR forgiveness does not count during this forbearance.
• Tax Deadline Risk: The temporary federal tax exemption for forgiven student loan balances is scheduled to expire after December 31, 2025. Borrowers nearing IDR forgiveness face the risk of unexpected tax liability if their discharge is not processed before January 1, 2026.
• Short-Term Forgiveness Status: The promise of forgiveness for borrowers with original loan balances under $12,000 who have made 10 years of payments, while part of the original SAVE regulation, is currently on hold due to the court injunctions.

---

The Current Status of the SAVE Plan’s Key Benefits

The SAVE Plan was designed as the most generous IDR plan ever, fully replacing the Revised Pay As You Earn (REPAYE) Plan. The plan aimed to deliver a number of benefits, but many are currently suspended:

1. The Under-$12,000 Loan Forgiveness (Currently On Hold)

• Original Rule: Borrowers with an original principal loan balance of $12,000 or less for undergraduate or graduate study would receive forgiveness after just 10 years (120 monthly payments) in the plan, instead of 20 or 25 years.
• Current Status: This accelerated forgiveness is paused due to the court injunctions. The Department of Education cannot legally implement this portion of the rule at this time.
• February 2025 Timeline Context: The specific group of forgiveness announcements that were planned for early 2025 were put on hold following the injunctions.

2. Monthly Payment Calculation (Original Formula Applies, But Paused)

The core benefit of the SAVE Plan is a higher income exemption and lower payment percentage is currently frozen, which led to the administrative forbearance for many.

• Zero-Dollar Payments: The plan increases the amount of income protected from repayment to 225% of the poverty line (up from 150%), resulting in a $0 monthly payment for millions of low-income borrowers. This specific payment calculation is paused, but borrowers whose loans are in the SAVE forbearance are currently not required to make payments.
• Interest Benefit Blocked: Under the original SAVE rules, if a borrower’s required monthly payment did not cover the interest, the government would cover the rest, preventing the loan balance from growing. The February 2025 court decision ended this benefit. Interest is now accruing on loans in the SAVE forbearance.

What You Need to Know and How to Act Now

Given the legal uncertainty, borrowers should actively assess their options:

If You Are Currently in SAVE Forbearance:

• Interest is Accruing: Your loan balance is increasing due to accruing interest since August 1, 2025.
• No Progress Toward Forgiveness: Time spent in this administrative forbearance does not count toward IDR forgiveness (including the 10-year under-$12,000 track) or PSLF.
• Actionable Step: If you are pursuing PSLF or are close to achieving IDR forgiveness and need your payments to count, you must switch to another eligible repayment plan (like IBR or PAYE) to exit the SAVE forbearance and begin making qualifying payments. Use the Federal Student Aid Loan Simulator to compare options.

If You Are Seeking to Apply or Maximize Forgiveness:

• IDR Forgiveness Processing: Forgiveness under the Income-Based Repayment (IBR) Plan—which was established by Congress—is currently the only IDR forgiveness track that the Department of Education can process. However, processing is slow and is a subject of ongoing lawsuits due to the massive backlog.
• Bankruptcy Option: For those facing overwhelming, persistent, and unmanageable debt, student loans can potentially be discharged in bankruptcy under the “undue hardship” standard.

________________________________________

Bankruptcy: The Evolving Path to Student Loan Discharge

As a professor who writes on Consumer Bankruptcy Law, I can confirm that recent guidance has fundamentally shifted the landscape, leading to a significant increase in successful bankruptcy discharges, at least for qualifying federal student loans.

The process for discharging student loans in bankruptcy is not automatic. It is pursued through a separate lawsuit filed within the bankruptcy case, known as the “Adversary Proceeding.”

The Current, Clearer Path for Federal Student Loans

Historically, discharging student loans required meeting the stringent “undue hardship” standard, most often assessed using the three-part Brunner Test. Borrowers had to litigate aggressively against the government or private lender.

However, the Department of Justice (DOJ), in coordination with the Department of Education, introduced new guidance in late 2022 to provide a clear, streamlined path for federal student loan borrowers to qualify.

Simplified Hardship Test: The new process uses a standardized Attestation Form to evaluate a borrower’s financial situation against the “undue hardship” standard. This form uses clear criteria such as IRS expense standards, age, long-term unemployment, or disability to determine if:

• The borrower currently cannot maintain a minimal standard of living while repaying the debt.
• The hardship is likely to persist.
• The borrower made a good-faith effort to repay (e.g., attempting Income-Driven Repayment plans).

Government Recommendation: If a borrower’s self-attestation meets the DOJ’s criteria, the Assistant U.S. Attorney representing the Department of Education is directed to stipulate to (agree with) the discharge, removing the need for a protracted legal battle.

This guidance has made discharge highly successful for qualifying federal loan borrowers who complete the Attestation Form in the Adversary Proceeding. Recent DOJ data suggests that when the government recommends discharge, the success rate is near 98% in the reviewed cases.

The Critical Need for Legal Representation

Despite the simplified guidance, filing an Adversary Proceeding remains a complex legal action. If you are considering this process, you should be represented by an experienced bankruptcy attorney.

While the legal fees for an Adversary Proceeding can cost several thousand dollars, this upfront investment must be weighed against the potential benefit of wiping out tens, if not hundreds, of thousands of dollars in debt. Attempting to represent yourself means litigating against an experienced Department of Justice attorney, and proper representation is crucial to ensure your financial situation is presented correctly under the new, technical guidelines.

Takeaway: The perception that student loans are impossible to discharge is outdated, especially for federal loans. For borrowers with unmanageable debt, the Adversary Proceeding, guided by an attorney knowledgeable about the new DOJ framework, is a viable and increasingly successful path to financial relief.

You can find the official guidance and Attestation Form on the Department of Justice website or in the link posted above.

The Looming Tax Deadline

The most critical and time-sensitive factor is the federal tax exclusion for student loan forgiveness, which is set to expire on December 31, 2025. Any forgiveness processed on or after January 1, 2026, may result in being taxed, adding thousands of dollars in unexpected income tax liability. Borrowers near the 20- or 25-year forgiveness mark must closely monitor the status of their accounts and the pending lawsuits. I also recommend you take screenshots of your entire payment history which should be available on your student loan servicer’s site.

The information above reflects the most recent publicly available data as of October 2, 2025, and may be subject to change based on future court rulings or government actions.

Colleges and universities can purchase my bankruptcy law textbook directly from Routledge Publishing. Paralegals and students who are buying single copies can do so via Amazon Books. To access my YouTube channel, click this link. You can also listen to my podcast on Spotify.

You can learn more about filing for bankruptcy and the bankruptcy petition via this link. Information on the bankruptcy court system, contact information for trustees, and your state’s exemptions can be found here. The federal bankruptcy exemptions are listed here. The latest version of the 341 Meeting of the Creditors can be found here.

You can find additional categories by clicking below or by using the search feature at the top of this page:

• Bankruptcy
• Your Wallet

Please note that the information on this site does not constitute legal advice and should be considered for informational purposes only.