What’s Changing on August 1, 2025

Beginning August 1, 2025, the U.S. Education Department will resume charging interest on approximately 7.7–8 million borrowers enrolled in the paused SAVE (Saving on a Valuable Education) income-driven repayment plan. These borrowers had enjoyed a zero-interest forbearance period following a federal court injunction halting SAVE. According to official estimates, restarting interest could add an average of $3,500 in annual interest costs per borrower.

Although monthly payments are temporarily paused, accrued interest will be capitalized once repayment resumes, thereby increasing principal balances.

The Economic Context—Inflation at 2025’s Peak

• While headline inflation had cooled earlier in 2025, new factors—including tariffs—threaten price gains again.
• Many U.S. households are increasingly stressed: rising costs for essentials reduce discretionary income and amplify financial fragility.
• Student loan collections have already triggered credit turmoil: millions saw credit scores drop by over 100 points in early 2025

Why This Matters—Three Faces of Impact

1. Financial Strain on Borrowers

• Higher overall costs: Interest resumption means borrowers may owe thousands more annually.
• Budget pressure: Borrowers facing inflated housing, food, and healthcare costs must now accommodate growing debt burdens.
• Credit risk remains high: Resume of collections and soaring delinquencies—approximately 25% of the $1.6 trillion portfolio—threaten credit access and consumer spending.

2. Wider Economic Drag

• Reduced consumer spending: Borrowers with tighter budgets may cut back on retail, travel, dining—slowing overall consumption.
• Tightened credit conditions: Lower credit scores can reduce borrowing across sectors like autos, homes, and small business.
• Weaker economic growth: Sluggish consumer demand and tightening credit could undercut GDP growth already clouded by inflation pressures.

3. Policy Dilemma

• Inflation-fighting vs. relief: The Federal Reserve is constrained—easing monetary policy could reignite inflation. But voters still feel the pinch from rising debt burdens.
• Political flashpoint: Resurrecting interest charges as inflation lingers is fueling criticism from Democrats and borrowers, upping calls for relief or refinancing programs.

How Borrowers & Policymakers Are Responding

For Borrowers:

• Explore alternate plans: Shifting into existing income-driven repayment (IDR) plans like IBR may lower monthly payments compared to post-SAVE terms.
• Consolidate or refinance: Refinancing federal into low-rate private loans could reduce costs—but may sacrifice benefits.
• Adjust budgets aggressively: With inflation pinching real income, tight budgeting, extra income efforts, or bi-weekly payments may help tame debt burdens.

For Policymakers:

• Expand forgiveness or relief: Renewed interest behind proposals for targeted forgiveness or interest waivers—particularly for borrowers in distress.
• Enhance IDR infrastructure: Backlogged plan applications (~1.5 million) and transitions from SAVE highlight need for faster servicer performance.
• Coordinate macroeconomic policy: Harmonizing Fed actions with fiscal support measures could balance inflation control without overburdening households.

Bottom Line

As interest resumes on student loans starting Aug 1, 2025, more than 7.7 million borrowers face a steep rise in debt just as inflation squeezes their finances. This policy move risks cascading effects—from reduced consumer spending and credit access to broader economic stagnation. Borrowers must proactively explore new repayment options, while policymakers grapple with balancing inflation control and household financial resilience.

Please note: Any opinions discussed in this article belong solely to the author, Marissa Berends, and do not necessarily reflect the views of Capitol Lien.

About the Author
Marissa Berends is a Certified Abstractor and Industry Relations Coordinator at Capitol Lien, a nationwide due diligence and risk mitigation services provider. Since joining the company in September 2021, she has earned abstractor certifications in Minnesota, Nebraska, and North Dakota. She is pursuing her Wisconsin Title Examiner certification, which is expected to be completed in Fall 2025.

Marissa is involved with the following groups: Wisconsin Land Title Association’s (WLTA) Convention Committee & Young Title Professionals; Nebraska Land Title Association’s (NLTA) Convention Committee; Property Record Industry Association (PRIA) National Education Committee; Illinois Land Title Association’s (ILTA) Inclusion, Diversity, Equity & Acceptance (IDEA) Committee; and the National Association of Land Title Examiners and Abstractors (NALTEA).

About Capitol Lien

Capitol Lien empowers real estate and title professionals with trusted public record research and due diligence services nationwide. With 35 years of experience, Capitol Lien specializes in fast, accurate property and title searches, lien reports, and document retrieval that help title agents, underwriters, and legal teams operate their businesses with confidence. The Capitol Lien team takes the hassle out of title research with local experts and innovative tools that make it easier to mitigate risk, stay on schedule, and keep your closings moving smoothly.

Learn more at capitollien.com. Ready to simplify your title research? Send your next order to Capitol Lien and experience the difference trusted diligence makes. Stay in touch with Capitol Lien on LinkedIn for industry updates and information. Reach out! contact@capitollien.com or 800-845-4077.

Sources:

Money.com: Student Loan Interest to Resume Accruing for 8 Million Borrowers. Should You Switch Plans?

MarketWatch: Democrats urge Trump administration to ‘immediately reverse’ policy restatring interest charges for millions of student loan borrowers; Millions of Americans are about to see their student loans accrue interest again. Here’s what to know.

Forbes: Millions of Studen Loan Borrowers Could Face $3,500 More Per Year In Interest – Here’s Why; Student Loan Borrowers, Do These 5 Things As The ‘Big, Beautiful Bill’ Takes Effect

PoliticoPro: Borrowers in SAVE forebearance will accrue interest starting in August

Financial Times: Studen loans: a drag, not a disaster

Investopedia: Education Department Resumes SAVE Plan Interest Accrual; Inflation Can Make Repaying Student Loans Even Harder – Here’s What You Need to Know; What Effects Would Mass Student Loan Defaults Have on the US Economy

Earnest: Interest will resume on SAVE Plan loans on August 1, 2025 – here’s what it means and what to do

Four Corners Learning: Understanding the Impact of Resumed Interest on U.S. Student Loans

Times of India: US student loan crisis deepens: How SAVE Plan borrowers could pay $3,500 more in interest annually

King5 News: Dept. of Education announces they’ll start interest accumulation on SAVE plan loans in weeks

Axios: Calm before [the] storm

The Wall Street Journal: The Federal Government Is Retreating From Student Lending

AP News: Credit Scores decline for millions as US student loan collections restart

CBS News: Are you a student loan borrower? Here’s how the One Beautiful Bill Act could affect you.

Research.com: Current Student Loan Interest Rates and How They Work for 2025

U.S. Department of Education: U.S. Department of Education Continues to Improve Federal Student Loan Repayment Options, Addresses Illegal Biden Administration Actions

Bankrate: Major changes coming to federal student loan program and other student loan news