PHOENIX — The fate of federal student loan forgiveness remains in legal limbo.
After the 8th Circuit Court of Appeals issued an injunction blocking the Biden Administration’s plan to cancel $10,000 worth of student debt for “low-to-middle-income borrowers,” the White House requested The Supreme Court of the United States (SCOTUS) step in.
On Thursday, SCOTUS responded to the Biden Administration’s request, saying justices would hear arguments beginning in February 2023.
A BRIEF TIMELINE OF STUDENT LOAN FORGIVENESS
On August 24, 2022, the Biden Administration announced a three-part plan to cancel $10,000 worth of federal student debt from non-Pell Grant recipients, and up to $20,000 for Pell Grant recipients. Eligible borrowers, per the plan, needed to make less than $125,000 per household or $250,000 for married couples.
Under the Biden-Harris Student Debt Relief Plan, the pause on federal student loan repayment was supposed to end on December 31, 2022, with payments expected to resume in January 2023.
Federal student loan repayments have been paused since March 2020, when the pandemic triggered the Department of Education to suspend repayments, stop collections on default loans, and drop interest rates to 0%.
In total, there have been eight pauses to federal student loan payments since the initial announcement in 2020.
With the latest announcement and continuing court battles, forbearance is expected to extend no later than June of 2023.
Exact verbiage from the Department of Education notes:
The student loan payment pause is extended until the U.S. Department of Education is permitted to implement the debt relief program or the litigation is resolved. Payments will restart 60 days later. If the debt relief program has not been implemented and the litigation has not been resolved by June 30, 2023 – payments will resume 60 days after that. We will notify borrowers before payments restart.
“Whenever that decision is made definitively, repayment will start within 60 days,” Cecilia Clark, a student loan expert from NerdWallet, said.
The official application for student loan forgiveness launched on October 17, 2022, with more than 26 million applications submitted to the Department of Education by the time the application prematurely closed on Thursday, November 11, 2022.
But immediately after the Biden Administration announced the Biden-Harris Student Debt Relief Plan, six states filed a lawsuit challenging the legality of the loan forgiveness.
“Whereas before the Biden administration had thought that they could get a lot of the forgiveness done before payments resumed in January, these court cases definitely put that timeline at risk, which is why we now have another extension,” Betsy Mayotte, President of The Institute of Student Loan Advisors, said.
The 8th Circuit Court of Appeals issued an injunction in November of this year, blocking the Biden Administration from dispersing loan forgiveness funds to borrowers.
In a statement from the Department of Education’s press office, 16 million applications “have been approved and sent to loan servicers to be discharged when allowed by the courts.”
The Department of Education estimates the program will cost $30 billion annually or $379 billion over the course of 30 years based on today’s monetary value.
“I HAVEN’T PAID MY STUDENT LOANS SINCE 2020. WHAT DO I DO?”
With loan payments on pause since March 2022, there are steps you need to take to ensure you're prepared to begin making payments again.
First, Mayotte suggests signing up for email alerts from the Department of Education at studentaid.gov.
Next, determine where your loans live, Mayotte said.
“Your loans might not even be where they were in March of 2020,” Mayotte said. “So log on to studentaid.gov and make sure you know who your loan holder is. And then make sure they know how to reach you.”
Mayotte also recommends renewing your Income Derivative Repayment Plan. Take a look at your finances, Mayotte said, to determine the affordability of upcoming payments.
“Can I afford a little more and pay my loans off quicker with less interest?” she said. “Or if I can't afford it, what are my options for lower pay?”
Keep an eye out for potential scams, as well.
“What's going on lately with the COVID pause and with the Biden-Harris Debt Relief [plan] is [like] Christmas, Fourth of July, and birthday all rolled into one for these scammers,” Mayotte said. “There's not a fee to apply for this and paying a fee is not going to get you closer to the front of the line for any of these programs.”
Clark noted that the Biden-Harris Debt Relief Plan is not “the end all be all when it comes to managing your student loans.”
“There are still other programs that borrowers can qualify for, and that might even be better for them,” she said.
Clark suggested borrowers look into Public Service Loan Forgiveness to see if they qualify, as well as an income-driven repayment waiver that will be applied in July of 2023.
“What this will do is count many more payments toward Income Driven Repayment Forgiveness at that time,” Clark said. “So, you know, with or without the outcome of student loan forgiveness, there are still other avenues for borrowers to be hopeful about in managing their student loan debt.”
