Summary
If you’re feeling confused about the status of student loan debt relief, read on to learn where things stand and how you might proceed.
Cutting Through the Confusion and Thinking Long-Term
Amid multiple legal challenges, President Biden’s student loan relief program has been temporarily blocked by federal courts. On December 1st, the Supreme Court agreed to hear oral arguments on the case in February 2023, with a final decision expected by June. Here’s what that means if you’re one of the millions of borrowers who qualify for student loan forgiveness.
What’s Going on With Student Loan Relief?
Several lawsuits have been filed against the student loan relief program since it was first announced in August 2022. Though many have been dismissed, there are currently two legal challenges to the program that the Supreme Court has agreed to hear.
First, six states (Nebraska, Missouri, Arkansas, Iowa, Kansas, and South Carolina) filed suit claiming that the President does not have legal authority to forgive the debt and that the program would also threaten the revenue of debt servicers. This case was initially dismissed, but the decision has since been overturned by an appellate court.
On December 13th, the Supreme Court agreed to hear another challenge to the program. This one was brought by two student loan borrowers with outstanding debt who did not qualify for forgiveness. They claim that the relief program was implemented improperly. Specifically, it did not follow the notice-and-comment rule which allows individuals to comment on proposed programs before they are enacted.
The U.S. Department of Education has stopped processing applications for debt relief and those that have already been approved have had their relief paused in light of the pending legal challenges. Borrowers will have to wait at least until the Supreme Court’s decision for an answer on their relief status.
What Can You Do in the Meantime?
In response to the temporary block against relief, President Biden has extended the payment pause which was originally set to resume in January 2023. The latest repayment freeze will last until 60 days after the litigation is resolved. If the program has not been implemented and/or the lawsuits have not been resolved by June 30, the payments will resume 60 days after that point.
For those who are eligible for student loan relief, you are likely in a holding pattern until there is a clear answer on the legality of President Biden’s program. Here are a few ideas to consider to help plan for possible repayment.
- Budget for repayment: Budgeting is crucial. Student loan payments have been paused since March 2020, which means many people have gotten used to spending these funds elsewhere. The sooner you can start reincorporating this expense back into your budget, the easier it will be when the time for repayment comes.
- Continue making payments during the freeze: If you can afford to do so, consider continuing to pay down your loan during the payment freeze. Not only does the pause stop all required payments, but it also prevents interest from accumulating on the outstanding balance. Where your payment would usually be split between principal and interest, during this time it is possible to make principal-only payments once any previously accrued interest is paid off.
- Monitor your student loan account for important updates and repayment dates: Since this round of the payment pause is dependent on the how and when the Supreme Court rules on the pending litigation, it’s important to stay up to date on what’s happening with the program. Your student loan servicer, and the U.S. Department of Education, should both issue statements and notifications regarding the status of your loan. Be sure to follow along and adjust your budget accordingly.
- Consider an income-based repayment plan: If you don’t think you’ll be able to afford your monthly payments if/when they resume, consider applying for an income-based repayment plan or Public Service Loan Forgiveness. Any previous defaults or delinquencies will be reversed, and good standing will be repaired during the repayment pause, which will allow more borrowers to access these programs.
Keep Your Long-Term Plan in Mind
If you are a student loan borrower hoping for debt relief, don’t wait until the last minute to start planning ahead. It’s important to keep your long-term financial plan in mind and make wise decisions about your student loans in the meantime. At Aviance Capital Partners, we’re here to help through our comprehensive Aviance WealthPlan™ process. To learn more, email us at wealthrelations@aviancepartners.com or set up a complimentary call here.
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