Here’s what borrowers need to know as Supreme Court weighs in on Biden’s student loan plan

WASHINGTON — The Supreme Court is meeting Tuesday to hear two cases challenging President Joe Biden’s plan to write off student loans. At stake: writing off up to $20,000 of debt to more than 40 million Americans. Nearly half of these people could write off their federal student debt entirely.

Already about 26 million people have applied for debt relief, and 16 million applications have been approved. However, due to the decision of the court, all payments are suspended. The Department of Education stopped accepting applications in November due to legal issues with the plan.

The Supreme Court will have the final say on whether Biden can pay off his student loan debt by fulfilling a campaign promise he made in 2020. Here’s what you need to know if you’re waiting for debt relief.

The plan, announced by Biden last August, would write off $10,000 of federal student loan debt for those earning less than $125,000 or households with incomes less than $250,000. Pell grant recipients, who typically come from low-income households, will receive an additional $10,000 in debt forgiveness totaling $20,000.

Borrowers are eligible if their federal student loans were paid off by July 1st.

So far, Republican-appointed lower court judges have prevented Biden’s plan from taking effect. The Supreme Court is dominated by the Conservatives 6-3, but it remains to be seen how the Justices will rule. Their questions during Tuesday’s oral argument starting at 10:00 AM ET will give you an idea of ​​what they think.

The Supreme Court will hear arguments on Tuesday, but a decision will not be made for several months. The court usually delivers all its decisions by the end of June.

Debt forgiveness, if it occurs, is for borrowers with federal student loans, not private loans.

To determine which loans you have, go to the Federal Student Aid website studentaid.gov. Direct loans, including Parent Plus loans, qualify. Some older FFEL and Perkins loans are also eligible if owned by the Department of Education. For people holding older FFEL loans, pooling these loans can result in a forgiveness loan under certain income-focused repayment plans.

During the pandemic, two presidential administrations have suspended payments to those with federal student loans. The break has been extended until this summer.

Payments must resume along with interest accrual 60 days after court cases are resolved. For example, if legal issues remain at the end of June, payments will resume at the end of August. If the court makes a decision in March, repayment may resume as early as May or June.

If cases are not resolved by June 30, payments will begin 60 days after that.

The Biden administration has not said whether it is exploring other debt relief options if it loses its appeals. But advocates point to other ways to write off the debt, including through the Higher Education Act.

Betsy Mayotte, president of the Institute of Student Loan Counselors, urges people not to make any payments until the pause is over. Instead, she says, put the payment in a savings account.

“So you have retained the habit of paying, but at the same time receiving interest. There is no reason to send this money to student loans until the last minute of zero interest.”

Mayotte encourages borrowers to use the loan modeling tool at StudentAid.gov or the TISLA website to find the payment plan that best suits their needs. The calculators will tell you what your monthly payment will be for each plan available, as well as your long-term costs.

“I really want to emphasize the long term,” Mayotte said.

Sometimes when borrowers are in financial difficulty, they opt for the option with the lowest monthly payment, which can cost more over the life of the loan, Mayotte said. Rather than “set it and forget it,” she encourages borrowers to reevaluate when their financial situation improves.

Yes, but some advocates are urging borrowers to wait for now, as there will be no financial penalty during the pause in payments and interest.

However, Katherine Welbeck of the Student Borrower Advocacy Center recommends logging into your account and making sure you know your provider’s name, repayment term, and whether you’re on a better income-focused repayment plan.

If your budget doesn’t allow you to resume payments, it’s important to know how to deal with the possibility of student loan default and delinquency. Both of these can damage your credit score, making you ineligible for extra help.

If you are in short-term financial difficulty, you may qualify for a deferment or forbearance, which will allow you to temporarily withhold payment.

“If you sign up for automatic payments, the servicer takes a quarter percent of your interest rate,” Mayotte says.

– Income-based repayment plans are not for everyone. However, if you know that you will eventually qualify for forgiveness under the Public Service Loan Forgiveness Program, it makes sense to make the lowest monthly payments as the rest of your debt will be canceled after this decade of payments is over. .

– Review your monthly student loan payment during tax season when you already have all your financial information in front of you. “Can you afford to increase it? Or should it be reduced? Mayotte said.

– Break down payments into ways that are convenient for you. You could consider two payments per month instead of one large monthly amount.

If you worked for a government agency or nonprofit, the public service loan forgiveness program offers cancellation after 10 years of regular payments, and some income-based repayment plans cancel the borrower’s balance of debt after 20 to 25 years.

Borrowers must ensure that they subscribe to the best income-based repayment plan to qualify for these programs. More information about these plans can be found here.

Borrowers who have been scammed by for-profit colleges can also apply for borrower protection and get help.

These programs will not be affected by the Supreme Court ruling.

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