What to Know About the Supreme Court's Student Loan Decision
Ten months after the Biden administration announced its plans to forgive up to $20,000 of federal student loan debt for many borrowers, the Supreme Court blocked the plan. While the decision was not unexpected, it is extremely disappointing to tens of millions of federal student loan borrowers (and also us at TFG).
What does the Supreme Court’s decision mean for student loan cancellation?
The Supreme Court’s decision means that the Biden administration (or any presidential administration) cannot cancel federal student loan debt unilaterally, at least not through the HEROES Act of 2003. Wide-reaching cancellation could still happen in theory—it would just have to go through Congress. But that’s highly unlikely given the current political environment (hence why the Biden administration tried to skirt Congress in the first place).
What does this mean for the start of student loan payments?
Ultimately, the Supreme Court’s decision did not affect the timing of the start of federal student loan payments. The most recent of the nine extensions of the student loan pause since March 2020 was meant to give the Supreme Court time to decide the fate of the Biden administration's debt cancellation plan. Student loan payments were set to restart 60 days after the Supreme Court’s decision or 60 days after June 30, 2023. However, the terms of the debt ceiling deal reached in early June also specified that the pause would end 60 days after June 30th. It had the added effect of preventing any future extensions so this is expected to be the real deal. Currently, interest on federal student loans will start accruing in September and payments will be due in October.
What plans are there for federal student loan relief going forward?
After the Supreme Court’s decision, President Biden also announced a few paths to ease the burden of federal student loans:
The administration plans to pursue another avenue to “waive or release” federal loans for some borrowers through the Higher Education Act. The details of this plan are not yet available but the administration said it would create an “alternative path to debt relief for as many working and middle-class borrowers as possible.”
The administration has finalized its plan for a more affordable income-based repayment plan called “SAVE” and promised that borrowers will be able to enroll before payments resume. The plan will:
Cap payments at 5% of a borrower’s discretionary income (rather than 10%-15%) for undergraduate loans
Increase the amount of income considered non-discretionary to 225% of the federal poverty level (which will reduce borrowers’ payments)
Cover any unpaid interest so a borrower enrolled in the plan will not see their balance grow
To avoid punishing borrowers as they readjust to student loan payments, the Department of Education will not report late or missed payments to credit bureaus during the first year after payments resume.
How can you prepare for student loan payments to resume?
While October seems like a long way off, it will be here before we know it. The sooner you start preparing, the less anxiety you’ll have come fall. Here are a few first steps to take:
Make sure you know who your student loan servicer is and that your contact information is up to date with them. (If you don’t know who your servicer is, log into StudentAid.gov.)
Find out how much your student loan payment will be by contacting your servicer and readjust your budget now to start saving that monthly amount.
Enroll in automatic payments with your student loan servicer to avoid missing payments.
Need help navigating your student loans?
To get started, schedule a free 20-minute consultation call to speak to a member of our team. We will ask you a few basic questions to get to know you more, walk you through our financial training program steps, and answer any questions you may have. No pressure to join! Need advice quickly? Talk to one of our Trainers on Demand.