NEW YORK (AP) — President Joe Biden’s plan to provide up to $20,000 in federal student loan forgiveness has been blocked by two federal courts, leaving millions of borrowers wondering what will happen next. The administration plans to appeal. Here’s what to know if you’ve applied for relief:
WHAT HAPPENS NOW?
Although the waiver request has been removed from the federal student aid website, the requests that have already been filed are on hold while the appeal progresses through the courts.
“The courts have issued orders blocking our student debt relief program,” the Department of Education said on its site. “As a result, at this time, we are not accepting applications. We are seeking to rescind these orders.
LOOK: Biden says nearly 26 million people have applied for student loan forgiveness
A Texas federal judge ruled that the plan exceeded the authority of the White House. Prior to that, a federal appeals court in St. Louis temporarily suspended the plan while it considered a challenge from six Republican-led states.
Still, lawyers believe the administration will succeed in court.
“We’re really confident they’ll find a way to write off people’s debt,” said Katherine Welbeck of the Student Borrower Protection Center.
Experts say student loan forgiveness has the potential to end up in the Supreme Court, meaning it could be a long process.
WHEN DO PAYMENTS RESUME?
Most people with student loan debt have not been required to make payments during the coronavirus pandemic, but payments are expected to resume, along with interest accrual, in January.
Biden had previously said the payment break would no longer be extended, but that was before the courts halted his plan. He now faces increasing pressure to continue the hiatus as legal challenges to the program unfold.
WHAT IF I HAVE ALREADY MADE A REQUEST FOR RESCUE?
More than 26 million people requested the cancellation in less than a month, according to the Ministry of Education. If you’re one of them, you don’t have to do anything else right now.
About 16 million people have already had their candidacy approved, according to the Biden administration. Yet, due to legal actions, none of the reparations were actually awarded.
The Education Department “will quickly process their redress once we win in court,” White House press secretary Karine Jean-Pierre said.
WHAT IF I HAVE NOT YET ASKED FOR REPAIR?
For those who have not yet applied, the debt cancellation application is no longer online. But there are still steps people can take to ensure their debt is forgiven, if the appeal is successful, according to Welbeck.
“People should always check their eligibility,” she said. “As the news changes, people should look for updates from the Department of Education.”
LOOK: Applications for student loan relief still open despite freeze
You can sign up to receive the latest news from the Federal Student Aid website here.
WHO QUALIFIES, SHOULD THE CALL SUCCEED?
The debt cancellation plan announced in August would cancel $10,000 of student loan debt for those earning less than $125,000 or households with incomes below $250,000. Pell Grant recipients, who typically demonstrate greater financial need, would get an additional $10,000 in debt forgiveness, for a total of $20,000.
Borrowers are eligible if their loans were disbursed before July 1.
According to the administration, about 43 million student borrowers are eligible for debt forgiveness, of which 20 million could see their debt entirely erased.
ARE THERE OTHER WAYS OF CANCELLATION?
For those who worked for a government agency or nonprofit organization, the Civil Service Loan Forgiveness Program offers forgiveness after 10 years of regular payments, and some income-driven repayment plans forfeit the rest. of a borrower’s debt after 20 to 25 years, according to Welbeck.
“Borrowers should ensure they are enrolled in the best income-based repayment plan possible,” Welbeck said. In July, the administration will review and adjust some of the accounts enrolled in these plans. You can read more about these plans here.
Borrowers who have been defrauded by for-profit schools can also seek borrower defense and receive relief on that basis, Welbeck said.
DO I HAVE TO RESUME PAYMENTS WHEN THE PAYMENT BREAK IS LIFTED?
Lawyers, including the Student Borrower Protection Center, are still urging the president to extend the pandemic-era payment freeze, arguing that students are entitled to the promised cancellation before the January refund date arrives.
That said, Welbeck recommends logging into your account, making sure you know who your repairer is, your due date, and whether you’re enrolled in the best income-based reimbursement plan, when you start making repairs again. payments.
The Student Loan Protection Center regularly hosts webinars on how to keep track of policy developments over the coming months. You can register here.
If your budget doesn’t allow you to resume payments, it’s important to know how to handle the possibility of default and delinquency on a student loan. You can read more about these here. Both can hurt your credit rating, making you ineligible for further help.
If you are in a difficult short-term financial situation, you may be eligible for a deferral or forbearance. With either of these options, you can discuss with your processor ways to temporarily suspend your payments. You can read more about these options here.
WHAT ELSE SHOULD I KNOW?
Beware of scams and get information only from trusted sources such as the Department of Education’s Federal Student Aid site.
IS IT POSSIBLE THAT THE DEBT WILL NOT BE CANCELLED?
Yes. The issue of debt cancellation is now before the courts.
The administration does not say whether or not it is exploring other options to cancel the debt if it loses its appeals. But advocates point to other ways to cancel the debt, including through the Higher Education Act.
HOW CAN I PREPARE FOR THE RESTART OF STUDENT LOAN PAYMENTS?
Betsy Mayotte, president of the Institute of Student Loan Counselors, encourages people not to make any payments until the break is over.
“I told people to pretend to pay their student loan, but put it in an interest-bearing account for now if you can,” she said. “Then you kept the habit of making the payment, but also earning a bit of interest. There is no reason to send that money to student loans until the last minute of the zero percent interest rate.
Mayotte recommends that borrowers use the loan simulation tool on StudentAid.gov or the one on the TISLA website to find the repayment course that best suits their needs. Once you enter your information, it tells you what your monthly payment would be under each available plan, as well as the amount of long-term costs.
“I really want to focus on the long term,” Mayotte said. “A lot of times I see people who might be struggling financially. They’ll find a lower monthly repayment option and then, ‘Set it and forget it.’
Mayotte encourages people to switch to higher payments if their financial situation stabilizes, so that the loan does not cost more in the long run.
Other useful tips that can reduce costs for borrowers:
- If you sign up for automatic payments, the repairer takes a quarter of a percent off your interest rate, according to Mayotte.
- Income-driven repayment plans aren’t for everyone. That said, if you know you’ll eventually qualify for forgiveness under the Public Service Loan Forgiveness Program, it makes sense to make the lowest monthly payments possible, because the rest of your debt will be forgiven once. once this decade of payments is over.
- Reassess your monthly student loan repayment at tax time, when you already have all your financial information in front of you. “Can you afford to increase it? Or do you need to decrease it? says Mayotte. “Always look at your long-term student loan management strategy.”
- Spread the payments out in a way that works best for you, whether it’s two installments during the month, so it’s not a big lump sum at the end or the beginning, or set aside money in envelopes for designated purposes.
“Even if it’s $5 or $20 more per month, it’s a good strategy,” Mayotte said. “If they can afford to pay a little more per month, the more you pay and the faster, the less you’ll pay in the long run.”
Mayotte gave an example of a debt-ridden higher education borrower in the six figures. She recently got married and she, her husband and children decided to put away every five dollar bill in a cookie jar to fund the loans.
“It was a few hundred dollars more each quarter,” Mayotte said. “Everyone has a different financial personality. There are those who are really good with budgets. There are people who need to play games and be wrong. And people shouldn’t judge other people’s financial personalities.