How to Move Forward with Student Loans
You are likely aware by now that the Supreme Court ruled 6-3 against the Biden Administration’s student debt relief plan which would have benefitted over 43 million student loan borrowers. As I have done previously on this topic, I wanted to provide a few facts and some things to keep in mind if you find yourself unable to afford your payments.
What happened?
There were two separate contests to the Administration’s plan being heard by the Supreme Court.
The first was by two individuals: one who would have received no benefit under the plan, and another who would have received $10,000 in forgiveness. Their claims were not upheld by the Court.
The second contest was brought by several states who argued that organizations within their states including the loan servicer MOHELA would be harmed by the Administration’s debt forgiveness plan (though MOHELA themselves have said that they would not be harmed by the debt forgiveness plan). While both the premise and the standing for the case to even be brought to the Supreme Court have been described as flimsy by legal scholars, the ideological majority of the court sided with those making this argument. The decision stated that the Administration did not have the authority to utilize the Higher Education Relief Opportunities for Students (HEROES) Act of 2002 to take such drastic measures as debt cancellation.
So where do we go from here?
It’s important to note that the student loan pause has ended per the debt ceiling agreement from the Spring, and payments will resume in October of 2023.
President Biden has stated that his administration will still pursue debt relief under powers provided by the Higher Education Act of 1965. He has indicated that this process will take longer than working through the aforementioned HEROES Act. All hope is not lost, but the timeline provides little relief to anyone who cannot afford their student loan payments in the immediate term.
What can I do if I can’t afford my payments?
There are several things to keep in mind for making your federal student loan payments more manageable.
New 12-month onramp: As a result of the Supreme Court ruling, President Biden announced a 12-month “onramp”. During this time period, borrowers are encouraged to make their payments. If they cannot make those payments, though, their credit scores will not be impacted and the loans will not enter default.
Income-based repayment plans: The second most exciting piece of President Biden’s original relief plan was a change to the income-based repayment plans so that payments under these plans become more affordable. These plans take your income into consideration when calculating how much you need to pay on a monthly basis. After a certain number of payments, the remaining balance on your loans can be forgiven. If this is something that interests you, reach out to your loan servicer to discuss your options.
Forbearance: If you’ve requested an income-based repayment plan but you still can’t afford that payment, a forbearance might be something to consider. While in forbearance your loan payments are paused but the interest will still continue to accrue. If you choose this path, be sure to ask your loan servicer how many months of forbearance they allow. It might be best to keep your options open in the event that you have a significant emergency.
Final thoughts
I have plenty to say about this decision, and I would invite you to reach out to me directly if you want to discuss anything pertaining to what has been written above or regarding your finances at large. One of the great promises of this country is that of social mobility, and obtaining a college degree is one of the most surefire ways to leverage that promise. The federal student loan system is incredibly flawed, but for some of us it is the only tool that we can use to achieve our dreams. I hope for greater reform in the space of higher education and I continue to hope for student loan forgiveness for those of us who fight every day to keep our heads above water.
John Howe-Wemett, CFP®, M.S.
