FINANCE

What happens now that the Supreme Court has blocked student loan forgiveness?

Student loan borrowers who had hoped to take advantage of Biden’s debt forgiveness program blocked by SCOTUS must now contend with what to do next.

JIM BOURGREUTERS

Shortly after the Department of Education announced that an online portal to submit an application for debt relief went live, it was closed due to a legal challenge. But that wasn’t before over 26 million Americans sent in petitions to have some or all of their financial burden from getting a higher education canceled.

By the time the agency had to legally stop processing applications, more than 16 million borrowers had been fully approved and discharge letters were sent to student loan servicers. Those who would have benefited from President Biden’s student loan forgiveness program have been waiting for months to find out what fate would befall it.

The answer came on 30 June with the Supreme Court’s final ruling of the year which blocked the Biden administration from going forward with the student debt relief plan. President Biden said that his administration is working on a new path forward to provide debt relief under a different law. He cautioned that it will take longer but that he’s directed his team “to move as quickly as possible.”

What happens now that the Supreme Court has blocked student loan forgiveness?

For the over 16 million borrowers that applied and were approved for student loan debt forgiveness they will join all other holders of federal student loans and have to restart payments come October. “The Supreme Court has ruled that we are unable to implement one-time debt relief under this initiative. As a result, we won’t be able to discharge any loans under this program,” the Federal Student Aid website states.

Interest will begin to accrue starting 1 September 2023 and a letter will be sent at least 21 days before the first payment is due in October.

Education Secretary Miguel Cardona announced that the agency is implementing a “12-month on-ramp transition period.” It is designed to protect borrowers who cannot make payments from “the harshest consequences of missed, partial or late payments.” The loans of borrowers who can’t pay their monthly bill in full during this period will not be referred to collection agencies nor go into default as well it will not lead to negative credit reporting.

Federal Student Aid advises borrowers though that if they can make payments, they should do so as even during this transition period interest will accrue. Borrowers are also advised to explore repayment plan options if they want to reduce their monthly payments.

How to reduce monthly student loan repayments

The Department of Education has finalized its revamp of the Revised Pay As You Earn (REPAYE) Plan. The new income-driven repayment plan Saving on a Valuable Education (SAVE) Plan is touted as “the most affordable repayment plan in history.”

Those who already have REPAYE plan or signed up for one, will automatically be switched over once it is available this summer. Those who are on another income-driven repayment plan, or want to get on one, you can look into setting up or switching to a REPAYE now, or SAVE when available. To check out your student loans log in to StudentAid.gov and go to My Aid page. Once in, scroll down and access ‘view your loans’.

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