Borrowers let down by the US Supreme Court ruling against the president’s student loan forgiveness program still must prepare to pay their monthly payments again.
The highest court in the land on Friday struck down the up to $20,000 in debt cancellation that President Joe Biden announced last year. On top of that, an estimated 40 million borrowers who had their payments paused during the pandemic must get ready for those to restart in October.
While the decision is likely a disappointment for many borrowers, they should also be aware of other debt relief programs under the Biden administration that could get them closer to loan cancellation or help make their payments more affordable.
Here’s what to know.
Payment pause will lift
As part of the debt ceiling deal that the White House struck with House Speaker Kevin McCarthy (R-Calif.) and passed earlier this month, federal student loan payments paused during the pandemic forbearance will be due beginning in October. Interest on those loans resumes in September. Additionally, the deal stipulated that the president can’t extend forbearance again.
That means borrowers need to prepare to make those payments again.
Borrowers should go to the Federal Student Aid (FSA) website to find out who their loan servicer is and their monthly payment amounts. Borrowers should also make sure their contact information is correct on both their loan servicer’s website and in their StudentAid.gov profile, so they can receive notifications from the Education Department.
Auto-debit payments likely won’t restart automatically for most borrowers, according to the FSA, so borrowers should opt in to confirm their auto-debit enrollment before payments restart.
FSA also recommends that borrowers use its Loan Simulator tool to find a repayment plan that meets their financial needs. Borrowers may also want to consider applying for an income-driven repayment (IDR) plan, FSA said.
Default borrowers should get their loans in current status using the government’s Fresh Start program to stop collections and wage garnishments when payments resume. The deadline to apply for Fresh Start is December 31, 2023.
Additionally, default borrowers who sign up for the Fresh Start program can move from their default loan servicer to a regular loan servicer, making them eligible for forbearance, deferment, and income-driven repayment plans, where a monthly payment of $0 counts as payment.
One-time adjustment
In spite of the Supreme Court loss, some borrowers will see get some debt relief from the one-time payment adjustment, which is separate from the court’s decision.
Last year, the Education Department announced it would count certain months toward student loan discharge that were previously ineligible under income-driven repayment plans, or IDRs.
The one-time payment adjustment helps to reverse some of the damage caused by loan servicers that did not properly track deferments or steered borrowers to forbearance instead of income-driven repayment plans that would have counted toward years of payment.
The adjustment to student loan accounts would go toward helping borrowers get closer to forgiveness under income-driven repayment plans, which offer discharge after 20 or 25 years of repayment, depending on the plan.
Around 3.6 million borrowers would receive at least three years of credit toward discharge as a result, according to Federal Student Aid.
The adjustment will happen automatically, unless your loans are in default or you have commercially-held FFEL loans. Default borrowers in the Fresh Start program are eligible for the one-time adjustment. Borrowers with commercially-held FFEL loans 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 in repayment for 20 or 25 years should see the adjustment to their accounts by August 1, 2023. Other borrowers will see the adjustment in 2024.
New income-driven repayment plan
When announcing the student loan forgiveness last year, the president also announced plans to reform income-driven repayment plans.
Some of the key changes would reduce monthly payments, prevent ballooning balances, and provide loan forgiveness after 10 years of making payments instead of the 20 or 25 years under current IDR plans. The reformed plan, though, will take some time to implement.
“If the Department of Education publishes a final rule in the Federal Register by November 1, 2023, the new regulations will go into effect on July 1, 2024,” Mark Kantrowitz, author and student loan expert, told Yahoo Finance. “However, it is possible that they could be implemented sooner, as the Secretary of Education has the authority to implement new regulations sooner in certain circumstances.”
Ronda is a personal finance senior reporter for Yahoo Finance and attorney with experience in law, insurance, education, and government. Follow her on Twitter @writesronda
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Source: https://finance.yahoo.com/news/student-loan-borrowers-should-take-these-steps-after-supreme-court-denies-forgiveness-154615803.html