Student borrowers should take these steps after Supreme Court denies pardon

Editor’s note: This article has been updated to reflect announcements from the Biden administration.

Borrowers disappointed by the U.S. Supreme Court’s ruling against the President’s student loan forgiveness program still need to be prepared to repay their monthly payments. The Biden administration hopes to facilitate this.

On Friday, the nation’s highest court overturned the debt forgiveness of up to $20,000 announced by President Joe Biden last year. On top of that, around 40 million borrowers whose payments were suspended during the pandemic need to prepare for them to restart in October.

In response, the Biden administration on Friday announced new measures to make it easier for borrowers to repay and provide another option for debt cancellation. Borrowers should also be aware of other debt relief programs under the Biden administration that could bring them closer to loan forgiveness or help make their payments more affordable.

Here’s what you need to know.

WASHINGTON, UNITED STATES – FEBRUARY 28: A sign reading Cancel Student Debt is staged outside the United States Supreme Court in Washington, DC on Tuesday, February 28, 2023. (Photo by Sarah Silbiger for The Washington Post via Getty Pictures)

Credit: Getty Images

The payment pause will be lifted

As part of the debt ceiling agreement the White House reached with House Speaker Kevin McCarthy (R-Calif.) and passed earlier this month, federal student loan payments are on hold during pandemic forbearance will be due from October. Interest on these loans will resume in September. In addition, the agreement stipulated that the president could no longer extend the abstention.

This means borrowers should be prepared to make those payments again.

Borrowers should go to the Federal Student Aid (FSA) website to find out who their loan officer is and their monthly payment amounts. Borrowers should also ensure that their contact information is correct both on their loan officer’s website and in their profile, so that they can receive notifications from the Department of Education.

(Credit: Federal Student Aid)

(Credit: Federal Student Aid)

According to the FSA, direct debit payments are unlikely to restart automatically for most borrowers. Borrowers must therefore choose to confirm their registration for direct debit before payments restart.

The FSA also recommends that borrowers use its Loan Simulator tool to find a repayment plan that meets their financial needs. Borrowers can also consider applying for an income contingent repayment (IDR) plan, the FSA said.

Here is a relief. The administration unveiled a plan to help borrowers when they restart suspended payments in October. For 12 months, borrowers will not be penalized for late, missed or partial payments. Borrowers do not have to do anything to qualify for the program.

Payments will still be due and interest will continue to accrue for the 12 months, but interest will not be compounded at the end of the ramp period. Borrowers who miss payments will not be reported to credit bureaus, will not be considered in default, and will not be referred to collection agencies for those payments.

Single adjustment

FILE - President Joe Biden speaks about the student debt relief portal beta test in the South Court auditorium of the White House complex in Washington, October 17, 2022. A sharply divided Supreme Court has ruled that the he Biden administration had overstepped its authority by trying to cancel or reduce student loans for millions of Americans.  Conservative justices had a majority in Friday's 6-3 ruling that effectively killed the $400 billion plan announced by President Joe Biden last year.  (AP Photo/Susan Walsh, File)

President Joe Biden speaks about the beta testing of the Student Debt Relief Portal in the South Court auditorium of the White House complex in Washington, October 17, 2022. (AP Photo/Susan Walsh, File)

Despite the Supreme Court’s loss, some borrowers will see debt relief through the one-time payment adjustment, which is separate from the court’s decision.

Last year, the Department of Education announced that it would count certain months for student loan release that had previously not been eligible under income-driven repayment plans, or IDRs.

The one-time payment adjustment helps reverse some of the damage done by loan servicers who failed to properly track deferrals or steer borrowers into forbearance instead of income-driven repayment plans that would have counted for years of payment.

Adjusting student loan accounts would help borrowers get closer to forgiveness under income-driven repayment plans, which offer release after 20 or 25 years of repayment, depending on the plan.

About 3.6 million borrowers would receive at least three years of credit for release, according to Federal Student Aid.

The adjustment will happen automatically, unless your loans are in default or you have FFEL loans held by companies. Fresh Start program default borrowers are eligible for the one-time adjustment. Borrowers with FFEL loans held for business purposes must consolidate those loans with Federal Student Aid (FSA) by December 31, 2023 to be eligible for the one-time adjustment.

Borrowers who have been repaying for 20 or 25 years should have their accounts adjusted by August 1, 2023. Other borrowers will see the adjustment in 2024.

New Income Driven Repayment Plan

When announcing the cancellation of student loans last year, the president also announced plans to reform income-contingent repayment plans. The administration provided an update on this plan today.

The administration finalized the Saving on a Valuable Education (SAVE) plan, an income-driven repayment plan that the White House says will cut borrowers’ monthly payments in half, allow many borrowers to pay $0 in monthly payments and prevent balances from becoming due. to unpaid interest.

The plan makes loan repayments more affordable in the following ways:

  • The maximum borrowers must pay for their undergraduate loans is 5% of their discretionary income, up from 10%.

  • No borrower below 225% of the federal poverty level will have to make a monthly payment.

  • Loan balances will be canceled after 10 years of payments – instead of 20 years – if the original loan balance was $12,000 or less.

  • Borrowers won’t be charged unpaid monthly interest, so balances won’t increase if they make their payments – even if that monthly payment is $0 because their income is low.

Student borrowers in repayment can enroll later this summer before monthly payments resume. Borrowers who enroll or are already enrolled in the Revised Pay as You Earn (REPAYE) plan will be automatically enrolled in the new plan.

Ronda is a senior personal finance reporter for Yahoo Finance and an attorney with experience in law, insurance, education and government. Follow her on Twitter @writesronda

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