In less then two months, US Supreme Court decision on President Joe Biden's proposal to forgive up $20,000 of student debt will be announced. How the decision will impact nearly 20,000,000 eligible borrowers and 40 million other eligible borrowers.
This will determine the time when borrowers can resume their payments of student loan interest and principal, which was suspended at the start the pandemic. The end of student loan forbearance was delayed eight times since then by two presidents.
The White House announced on August 1, that after the debt cancellation program was launched, loan payments would begin again Jan. 1, 2023. The Supreme Court was consulted after the challenges were brought to its attention. This pause has been extended once again to give them time to decide.
Biden made a statement saying that it is not fair to expect tens of thousands of eligible borrowers to continue making payments on their student debt while the court decides whether to grant relief.
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When can student loans be repaid?
The Supreme Court's ruling in two cases that challenge President Biden's Plan will determine the date when student loans and interest payments begin. The court heard arguments in both cases Feb. 28, and it must rule by June 30, before the Justices go on summer vacation.
The White House said that interest and payments will resume within 60 days of the Supreme Court ruling or after June 30th 2023.
Mark Kantrowitz is a student loan specialist who believes the administration will delay starting the countdown until after the Supreme Court's ruling. Kantrowitz says that if a ruling was handed down on May 25, then the 60-day countdown would begin on June 1 and payments would resume August 1, 2023.
The forbearance period would end on September 1, 2023 if the court delays its decision until June 30, but if it does so, the ruling will be issued by the end of the month.
It's possible that the moratorium can be extended again. However, experts claim this is only a temporary solution and not an answer to the student loans crisis.
Loan repayments could resume in stages
Restarting the entire process at once would be a nightmare for administrators, given that millions of Americans are still not paying their student loans after three years. White House may consider a gradual rollout or even possible extensions. Politico reports that there are several options, including delaying the requirement for payments until October 20, 2023. This will give time for lenders to send billing statements to borrowers and update their bank details. It has been suggested that a grace-period of up to one (1) year be implemented, in which late fees would not be charged and the accounts wouldn't go into default.
What student loans have been paused currently?
Biden's program will forgive up to $10,000 of public student loans if you earn less than $125,000 annually or if you and your spouse make less than $250,000. Borrowers repaying federal Pell Grants could receive an additional $10,000 of relief.
All federally-held student loans are included in the moratorium, regardless of who is servicing them. Student loans that are eligible include:
- Direct federal loans for students
- Federal Family Education Program loans are held by Department of Education.
- Federal Perkins Loans – Department of Education
- Defaulted FFELs are not held in the Department of Education
- HEAL loans that have defaulted are referred to as HEAL loans.
Included in the list of student loans that do not qualify are:
- Non-defaulted FFELs that are not held in the Department of Education
- Federal Perkins loans not held by Department of Education
- Non-defaulted loans for HEAL
- Private student loans
If you qualify, interest and payments on your student loans were automatically suspended as of March 13th 2020. If you aren't sure if the payments on your student loans have been paused, please contact your loan provider.
What are the challenges of the Student Loan Forgiveness Plan?
The Higher Education Relief Opportunities for Students Act (HEROES Act) of 2003 gives the federal authority to "alleviate any hardship that federal loan recipients might suffer due to national emergencies.
Mark Pittman, a Texas Judge in November of 2022 ruled that HEROES does not give "clear congressional authorization" to the executive for a $400 Billion Student Loan Forgiveness Program.
A federal appeals court, however, issued a temporary injunction to stop the White House from pursuing its appeal.
In another case, Republican Attorneys General in six states — Nebraska Missouri Arkansas Iowa Kansas South Carolina – claimed that Biden's plan threatened tax revenue from companies who invest in or service student loans in those states. The plaintiffs took their case to the Supreme Court after the initial ruling was thrown out because the states didn't have the legal standing to challenge the decision.