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Will I have to repay my student loan of up to $20,000 if the Supreme Court overturns the forgiveness plan?

The Supreme Court heard oral arguments on the Biden administration’s student loan forgiveness program. Borrowers should prepare for the worst-case scenario.

Student-loan borrower’s should have a “Plan-B” for debt forgiveness

One of President Biden’s signature initiatives during the 2020 campaign was forgiving student loan debt. While it took nearly two years to announce, the Department of Education launched an online registration site in October for those with federal student loan debt to apply to have up to $20,000 of it forgiven.

However, the program was put on hold after a court in Texas declared it illegal, the second ruling against the program stemming from several lawsuits that were filed against it. But that wasn’t before almost 26 million Americans applied for the program, of which 16 million were approved according to the White House, but their situation is in limbo.

Two cases were heard before the Supreme Court in February, and it will be up to the Justices to decide the fate of the Biden-Harris administration student loan debt forgiveness. The conservative majority on the court sounded favorable to upholding the blocks imposed by lower courts. So, those people, and all other would-be applicants, are wondering what will happen to student loan debt forgiveness.

Student loan borrowers should prepare for the worst-case scenario

While the outlook for student loan borrowers is gloomy there is some good news. The moratorium on repaying student loans and interest accruing on them is still in place. The covid-era policy doesn’t expire until either 60 days have passed from the time the litigation around its forgiveness plan resolves, or failing that, at the end of August, whichever comes first.

So, those with student loan debt that were hoping to take advantage of the forgiveness program have time to prepare for whatever the outcome is. That way your financial situation won’t come unraveling, as the saying goes, “a stitch in time saves nine.”

Options for Americans with student loan debt if forgiveness program is overturned

The Biden administration has been working to overhaul student loan forgiveness programs that are already in place. “Student loans were never meant to be a life sentence, but it’s certainly felt that way for borrowers locked out of debt relief they’re eligible for,” said US Secretary of Education Miguel Cardona last year announcing changes his department was working on to speed up debt cancellations under existing programs.

Student-loan borrowers can take advantage of Public Service Loan Forgiveness (PSLF) program and Income-Driven Repayment plans if they qualify. These plans provide the possibility for a borrower to have their debt cancelled in 10 to 20 years, respectively.

The White House also announced proposed changes to shorten the time for debt to be forgiven under IDR plans to just 10 years of payments, even if those payments are for zero dollars per month, in some cases. The proposal could also cut payments in half by raising the threshold for income protected from repayment in addtion to stopping interest from accumulating if monthly payments are made.

One final option would be to declare bankruptcy, but this would come at the expense of a downgraded credit rating for 7 to 10 years. The Biden administration announced updated guidance on how the government treats federal student loan debt in bankruptcy proceedings. Previously, this avenue was near to impossible to use, but will only apply to those who are experiencing “undue-hardship” because of their outstanding student loan debt.


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