Supreme Court Nixes Biden’s Loan Forgiveness Plan: What’s Next for Borrowers?

Clients with student loan debt should, for now, plan on restarting payments in October.

The U.S. Supreme Court has handed down its final ruling denying President Joe Biden’s power to forgive up to $20,000 in student loan debt for millions of Americans under the Higher Education Relief Opportunities for Students Act.

Many student borrowers are wondering what they should do now that the Supreme Court has finally issued its decision on Biden’s student loan forgiveness plan — and much of the nation is looking to Biden’s newly released plan to tackle the issue of student loan forgiveness.

It’s important for clients with student debt to take action quickly, as the student loan repayment freeze will soon be over. Those clients should also look ahead to options and relief that may be newly available since the last time the borrower made a student loan payment.

Next Steps for Student Borrowers

Student borrowers should be aware that interest on their loans will once again begin accruing on Sept. 1. Payments themselves will resume in October.

Because many borrowers have not accessed their accounts in up to three years, clients with student loans should be advised to access their accounts now to avoid problems once payments resume. Many accounts have been transferred between loan servicers over the past three years — and some borrowers will have to recreate online accounts with new servicers. It’s estimated that up to 30 million accounts have changed hands since early 2020.

Because student loan servicers are understaffed, clients with student loans should call soon if they have questions about their accounts. It is expected that wait times to speak with an actual person could be long.

Once clients are able to access their accounts, they should look for new repayment options that could grant some relief based on the client’s income level.

Looking Forward to Biden’s Next Plan

The Biden administration has already announced a new plan designed to provide student loan relief to American borrowers. That plan would use the Higher Education Act as its avenue for offering student debt forgiveness (presumably, that plan would also forgive up to $10,000 in debt for most borrowers and up to $20,000 in debt for Pell Grant recipients).

Under the HEA, the U.S. Department of Education is entitled to “enforce, pay, compromise, waive, or release any right, title, claim, lien, or demand” related to federal student debt.

However, a public notice and comment period is required under the law. The Department of Education has already initiated the rulemaking process to begin a notice and comment period with respect to the new loan forgiveness plan.

Student borrowers should also note that the Department of Education has offered new relief for borrowers who will be required to restart payments later this year. Under that plan, financially vulnerable individuals who miss student loan payments between Oct. 1, 2023, and Sept. 30, 2024, will not be considered delinquent. That means those borrowers will not be reported to credit bureaus, placed in default or referred to collection agencies.

The Biden administration has also modified the income-based repayment programs that currently exist to provide relief for student borrowers. For borrowers with undergraduate loans, the percentage that borrowers will have to pay each month will be cut from 10% to 5% of discretionary income.

Individuals who earn less than $30,500 annually ($62,400 for married taxpayers) could have no monthly payments at all under the new plan. However, it is unclear when these new rules would take effect before payments resume in October.

Conclusion

Clients with student loan debt have faced months of uncertainty over the fate of Biden’s student loan forgiveness plan. For now, they should plan on restarting payments in a few short months — and pay close attention as the administration’s new plan progresses.

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