Washington, D.C. – The U.S. student loan landscape is undergoing a major transformation as over 7.5 million borrowers enrolled in the Saving on a Valuable Education (SAVE) repayment plan face a 90-day deadline to select a new repayment option. This shift, coupled with the elimination of Grad PLUS loans for new borrowers, is redistributing risk and opportunity across federal loan servicers and private lenders.
Starting July 1, the Education Department began notifying SAVE plan participants that they must choose a new plan within 90 days or be automatically placed on either the Standard or the new Tiered Standard plan. This forced migration comes as the federal student loan portfolio already shows signs of strain. According to Federal Student Aid data, as of March 31, 42.6 million borrowers held $1.7 trillion in federal student loans, with 9 million borrowers—owing $220 billion—already in default. The SAVE plan alone accounts for over 7.5 million borrowers, representing nearly 80% of the default population.
For private lenders, the policy changes could open new avenues. New federal loan caps for graduate and professional students—set at $20,500 and $50,000 annually, with lifetime maximums of $100,000 and $200,000 respectively—may push higher-cost programs to seek private financing. This could benefit companies like SLM Corp (Sallie Mae) and SoFi Technologies, which have already seen growth in private education lending. Sallie Mae reported first-quarter private education loan originations of $2.9 billion, up 5% year-over-year, with graduate loans rising 14%. SoFi’s student loan origination surged 119% to $2.6 billion in the same period.
Federal loan servicers, however, face heightened operational risks. The Government Accountability Office noted that four of the five servicers working with Federal Student Aid failed accuracy standards before the agency halted quality checks in February 2025 due to staff reductions. Inaccurate records can lead to incorrect billing or repayment status for borrowers. Nelnet, which services $525.7 billion for 15.5 million borrowers, reported $127.8 million in loan servicing revenue in Q1. Higher contact volumes from the SAVE transition could strain resources. Maximus, through its Aidvantage business, also handles federal servicing and is expected to see increased call volumes.
The new federal loan caps are already sending price signals to educational institutions. The University of California, Irvine’s business school cut MBA tuition, and Santa Clara University’s law school increased scholarships in response. UC Berkeley professor Jennifer Delaney noted that the caps will not lock everyone out, but Sandy Baum of the Urban Institute called the law “not well thought out.” Meanwhile, litigation over which programs qualify as professional degrees adds uncertainty. Currently, registered nursing, physical therapy, and physician assistant programs are counted, but theology and pre-theology are not, pending court decisions.
Religious colleges face an additional earnings test beginning July 1, 2027, under which programs lose Direct Loan access if they fail in two out of three award years. The Education Department projects that 9% of undergraduate religious studies programs and 6% of graduate programs would fail. Philip Dearborn of the ABHE Commission on Accreditation said, “We really don’t know what the impact is going to be.”
For borrowers, the transition is complex. New York Attorney General Letitia James noted that PAYE and ICR plans remain available for loans taken before July 1, but must be replaced by July 1, 2028. For new loans, the main options are the Repayment Assistance Plan and the Standard plan.
Overall, the student loan reset is creating a bifurcated market: federal servicers face short-term operational strain, while private lenders may see long-term growth opportunities as students and families turn to alternative financing for high-cost graduate education.
