• Student loan repayment pause could last until the end of August if the Biden Administration’s student loan forgiveness plan is still being litigated by then.
• Supreme Court hearing arguments on the plan, with payments resuming as soon as legal challenges are resolved and debts forgiven.
• Further payment pauses are possible due to continued COVID-19 uncertainty and lenders’ unfamiliarity with bills resuming.
• Collection activity will remain paused for now; borrowers in default can look into the ‘Fresh Start’ initiative.
• Suggested actions for borrowers include saving money usually put toward student debt each month and paying down more expensive debts like credit cards.
What You Need to Know About Possible Student Loan Payment Extension
With the Biden administration’s student loan forgiveness plan currently being litigated, student loan payments may be suspended until the end of August 2023. This means that borrowers will have an additional three months before they are required to start making their monthly payments. While this could be a huge help for some borrowers, there are still a few unknowns. Let’s take a look at what we know about the potential payment pause extension and what actions you can take during this time.
History of Biden Administration’s Student Loan Forgiveness Plan
The Biden Administration’s student loan forgiveness plan was proposed by President Joe Biden as part of his 2021 budget plan. It aims to make it easier for borrowers to relieve their student loan debt and offers considerable savings on long-term student loan payments. The plan would forgive up to $10,000 in federal student loan debt (or $20,000 in debt for Pell Grant recipients) of federal student loans for each borrower, with an additional provision that would forgive the remaining balance entirely after 20 years of consistent payments. To qualify, borrowers must have taken out a federal direct loan at least five years ago and have made 120 consecutive monthly payments.
However, the plan is currently being litigated by Student Loan Servicers and is being heard before the Supreme Court. The outcome of the arguments will determine when payments on federal student loans will resume after a pandemic-related pause was put in place almost three years ago.
With continued COVID-19 uncertainty and lenders’ unfamiliarity with bills resuming, further payment pauses are possible. Additionally, the Supreme Court hearing arguments on the plan, payments will resume as soon as legal challenges are resolved, and if the debt is forgiven. This means that borrowers will have an additional three months before they are required to start making their monthly payments, which could last until the end of August 2023.
Details on Possible Payment Pause Extension
It’s been nearly three years since federal student loan borrowers have had to make payments on their education debt, with the Biden Administration’s student loan forgiveness plan helping to provide much-needed financial relief for millions of Americans. The plan seeks to provide up to $10,000 in federal student loan forgiveness for each borrower who has taken out a federal direct loan at least five years ago and made 120 consecutive monthly payments. The challenge has been heard before the Supreme Court and could extend the suspension of payments until the end of August 2023 if all legal challenges are resolved.
Borrowers with federal student loans have enjoyed a nearly three-year break from making payments on their education debt, and the pandemic-era pause has been extended numerous times by the U.S. Department of Education. Amid legal challenges to President Joe Biden’s student loan forgiveness plan, the government recently announced yet another extension of the repayment pause, which gives borrowers an additional three months before they are required to start making payments again. Collection activity will remain on pause, and borrowers in default may be able to take advantage of the “Fresh Start” initiative, which allows them to pay down more expensive debts before focusing on their student debt. According to the Department, federal student loan bills will be due again 60 days after the litigation over the forgiveness plan resolves and the debt begins to be wiped out. Payments on student debt may resume by the end of August if the Biden administration is still in litigation or fails to progress with the loan forgiveness process by the end of June. The timeline for the resumption of payments hinges on the Supreme Court’s verdict on the case.
It is important for borrowers who are taking advantage of this additional time not to just assume that their debt will be forgiven and instead use it as an opportunity to save money each month that would usually go towards student loans or use it for other investments that can help build financial security.
Supreme Court Hearing Arguments on the Plan
On Tuesday, the Supreme Court heard oral arguments for two challenges to President Joe Biden’s student debt relief plan. Conservative justices appeared skeptical of the government’s authority to discharge federally held loans and if they rule in favor of the policy’s challengers, they will have to grapple with legal questions about why states and individual borrowers should be allowed to sue over the program. The outcome of the arguments will determine when payments on federal student loans will resume after a pandemic-related pause was put in place almost three years ago, and millions of eligible borrowers of student loans could have a chance to have their debts canceled, up to a maximum of $20,000.
The first case, Biden v. Nebraska, involves a group of Republican-led states arguing that the administration exceeded its authority by using the pandemic as a pretext to fulfill a campaign promise of erasing student loan debt. The second case, Department of Education v. Brown, was initially brought by two individuals who did not qualify for the program and argued that the government failed to follow proper rulemaking processes when putting it in place.
In the oral arguments, conservative justices signaled that they see the GOP states’ case as presenting the court with another chance to draw the lines around when the executive branch can and cannot act without Congress. They raised concerns over the application of the Major Questions Doctrine and the harm that makes it appropriate for a court to intervene, which is known as “standing.”
Justice Amy Coney Barrett asked particularly pointed questions of the GOP states about their standing arguments, setting her apart as a potential pick-up vote for the court’s three liberal members. Justice Sonia Sotomayor highlighted the practical implications of the case, stating that there are 50 million students who will benefit from this and that those debtors will suffer in ways others won’t because of the pandemic.
Potential Effects of Further Payment Pauses
If the Supreme Court rules in favor of the Biden Administration and extends the payment pause, there could be a host of positive effects for borrowers. For one, any collection activity on defaulted loans would also be paused during this period. Additionally, those who qualify could get a “fresh start” if their loans are completely forgiven through the program and wiped from their credit history.
On the other hand, borrowers who don’t qualify for loan forgiveness could find themselves in a difficult spot if payments are paused for an extended period of time. They may find that their credit score has taken a hit due to missed payments and collection activities, making it harder to access other types of financing. Additionally, interest will continue to accrue on the loans during this period, meaning those who don’t take advantage of the pause will end up owing more money than they did originally.
Ultimately, whether or not the Supreme Court rules in favor of the Biden Administration’s student debt relief plan and extends payment pauses is yet to be seen. As such, borrowers should take advantage of any additional time they have now to save, pay down their debt, and prepare for the potential implications of the court’s ruling.
Possible Implications of Supreme Court Ruling
If the Supreme Court rules in favor of President Biden’s plan, it will provide relief to millions of borrowers who are struggling with student loan debt. It could also lead to other changes in government policies related to higher education such as increased access to grants and free college tuition. Such changes could help students avoid taking out large amounts of student loan debt in the first place.
The ruling could also have implications for private lenders, who may see a decrease in demand if borrowers no longer need to take out loans to cover higher education costs. On the other hand, some lenders may find new opportunities as more people become eligible for federal student aid and look to private lenders for additional financing.
The outcome of the Supreme Court case will have a significant impact on students and lenders alike. Therefore, it is important to pay attention to the proceedings and consider what implications the ruling may have. Regardless of the court’s decision, borrowers should continue to take steps to manage their student loan debt responsibly. Keeping up with payments, budgeting, and seeking student loan forgiveness programs are all ways to ensure that you stay on top of your finances and make progress toward paying off your debt.
It is also worth noting that the ruling may have consequences beyond just higher education. If the Supreme Court sides with the Biden Administration, it could set a precedent for future cases regarding executive authority. As such, this case is likely to have far-reaching implications that will be felt in many aspects of society. For now, we must wait and see what the court decides.
What Borrowers Need to Know Now
At this point, it is unclear how long the payment pause will last due to continuing uncertainty surrounding the COVID-19 pandemic and lenders’ unfamiliarity with bills resuming. Collection activities on defaulted loans will remain paused for now, so borrowers who have fallen behind can look into their options through the ‘Fresh Start’ initiative from the Department of Education.
The US Department of Education is developing a new repayment alternative for the millions of Americans burdened with federal education debt. This plan is expected to have about one-third of borrowers enrolling and could reduce monthly bills by half.
This new option modifies one of the existing four income-driven repayment plans that restrict borrowers’ bills based on their discretionary income. Rather than paying 10% of their discretionary income per month under the Revised Pay As You Earn Repayment (REPAYE) Plan, borrowers will be required to pay only 5% towards their undergraduate student loans.
The current REPAYE Plan forgives any remaining debt on undergraduate student loans after 20 years of payments. This timeline is preserved under the revised option. However, as per the Biden administration’s proposal, individuals with original student loan balances of $12,000 or less may have their loans forgiven after only 10 years.
At present, discretionary income under the REPAYE Plan is calculated based on earnings over 150% of the federal poverty guideline. Consequently, single borrowers begin paying based on income above roughly $21,900, according to higher education expert Mark Kantrowitz.
Under the new plan, borrowers would only need to make payments based on income earned after it exceeds 225% of the federal poverty guideline, or about $32,800, Kantrowitz added.
Suggested Actions for Borrowers During This Time
Borrowers should take the time they have now to save, pay down their debt, and prepare for the potential implications of the court’s ruling. Additionally, borrowers should research loan forgiveness programs and other options that may help reduce their burden of student loan debt.
Finally, borrowers should stay informed about the Supreme Court case and any new developments. Keeping up with news and regularly reviewing your loan agreements can help ensure that you are prepared for whatever comes next. It is important to remember that you do have options and taking advantage of them may help ease the burden of student loan debt in the future.
By staying informed, understanding their loan terms, and taking action now, borrowers can be better prepared for the outcome of the Supreme Court case and manage their student debt responsibly. Whatever the court decides, there are ways to maintain financial stability and make progress toward loan repayment.
The outcome of this case is still up in the air; however, it could mean big things for student loan borrowers no matter which way it goes. Whether it’s a collection activity pause or complete loan forgiveness, any decision made by the Supreme Court could drastically reduce stress and financial burden on millions of Americans across our nation. To make sure you’re prepared for whatever happens next, make sure to save money usually put toward your student debt each month and pay down more expensive debts like credit cards while we wait to see what happens with this case. Doing so now could lead to more financial freedom down the road!