Student loan forgiveness gets its day in court: What to know

By CORA LEWIS
Associated Press

NEW YORK (AP) — The Supreme Court is meeting Tuesday to hear two cases challenging President Joe Biden’s student loan forgiveness plan. At stake: forgiveness of up to $20,000 in debt for more than 40 million Americans. Nearly half of those people could have their federal student debt wiped out entirely.

Already, about 26 million people have applied for debt forgiveness, and 16 million applications have been approved. However, because of court rulings, all the relief is on hold. The Education Department stopped taking applications in November because of legal challenges to the plan.

The Supreme Court will have the ultimate say on whether Biden can wipe out student loan debt, fulfilling a campaign pledge he made in 2020. Here’s what to know if you’re waiting for debt relief.

WHO QUALIFIES FOR BIDEN’S STUDENT LOAN FORGIVENESS?

The plan Biden announced last August would cancel $10,000 in federal student loan debt for those earning less than $125,000 or households with less than $250,000 in income. Pell Grant recipients, who typically come from lower-income households, would receive an additional $10,000 in debt forgiveness, for a total of $20,000.

Borrowers qualify if their federal student loans were disbursed before July 1.

HOW IS THE SUPREME COURT EXPECTED TO RULE ON STUDENT LOANS?

So far, Republican-appointed lower court judges have kept Biden’s plan from going into effect. The Supreme Court is dominated 6-3 by conservatives, but it remains to be seen how the justices will rule. Their questions in the oral arguments Tuesday, starting at 10 a.m. Eastern, will give insight into what they’re thinking.

WHEN WILL THE SUPREME COURT DECIDE THE STUDENT LOANS CASES?

The Supreme Court hears arguments Tuesday, but there won’t be a decision for months. The court usually issues all of its decisions by the end of June.

HOW DO I KNOW IF MY STUDENT LOANS WILL BE FORGIVEN?

Debt forgiveness, if it goes ahead, is for borrowers holding federal student loans, not private loans.

To determine what kind of loans you hold, log in 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, consolidating those loans can lead to credit for forgiveness under certain income-driven repayment plans.

WILL THE PAUSE IN STUDENT LOAN PAYMENTS CONTINUE?

During the pandemic, two presidential administrations paused payments for those holding federal student loans. The pause has been extended to as late as this summer.

Payments are set to resume, along with the accrual of interest, 60 days after the court cases are resolved. For example, if legal issues remain at the end of June, payments would restart at the end of August. If the court issues a ruling in March, repayment could restart as early as May or June.

If the cases haven’t been resolved by June 30, payments will start 60 days after that.

IS IT POSSIBLE BIDEN’S STUDENT LOAN FORGIVENESS WON’T HAPPEN AT ALL?

Yes.

Biden’s administration is not saying whether it is exploring other options for canceling debt if it loses its court appeals. But advocates point to other ways the debt might be forgiven, including through the Higher Education Act.

HOW SHOULD I PREPARE FOR STUDENT LOANS PAYMENTS TO RESTART?

Betsy Mayotte, President of the Institute of Student Loan Advisors, encourages people not to make any payments until the pause has ended. Instead, she says, put your payment amount into a savings account.

“Then you’ve maintained the habit of making the payment, but earning a little bit of interest as well. There’s no reason to send that money to the student loans until the last minute of the 0% interest rate.”

Mayotte recommends borrowers use the loan-simulator tool at StudentAid.gov or the one on TISLA’s website to find the payment plan that best fits their needs. The calculators tell you what your monthly payment would be under each available plan, as well as your long-term costs.

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

Sometimes, when borrowers are in a financial bind, they’ll choose the option with the lowest monthly payment, which can cost more over the life of the loan, Mayotte said. Rather than “setting it and forgetting it,” she encourages borrowers to reevaluate when their financial situation improves.

CAN I SET UP A PAYMENT PLAN FOR MY STUDENT LOANS?

Yes, but some advocates encourage borrowers to wait for now, since there’s no financial penalty during the pause on payments and interest accrual.

That said, Katherine Welbeck of the Student Borrower Protection Center recommends logging on to your account and making sure you know the name of your servicer, your due date and whether you’re enrolled in the best income-driven repayment plan.

If your budget doesn’t allow you to resume payments, it’s important to know how to navigate the possibility of default and delinquency on a student loan. Both can hurt your credit rating, which would make you ineligible for additional aid.

If you’re in a short-term financial bind, you may qualify for a deferment or a forbearance — allowing you to temporarily suspend payment.

HOW CAN I REDUCE COSTS WHEN PAYING OFF MY STUDENT LOANS?

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

— Income-driven repayment plans aren’t right for everyone. That said, if you know you will eventually qualify for forgiveness under the Public Service Loan Forgiveness program, it makes sense to make the lowest monthly payments possible, as the remainder of your debt will be cancelled once that decade of payments is complete.

— Reevaluate your monthly student loan repayment during tax season, when you already have all your financial information in front of you. “Can you afford to increase it? Or do you need to decrease it?” Mayotte said.

— Break up payments into whatever ways work best for you. You could consider two installments per month, instead of one large monthly sum. ARE STUDENT LOANS FORGIVEN AFTER 10 YEARS?

If you’ve worked for a government agency or a nonprofit, the Public Service Loan Forgiveness program offers cancellation after 10 years of regular payments, and some income-driven repayment plans cancel the remainder of a borrower’s debt after 20 to 25 years.

Borrowers should make sure they’re signed up for the best possible income-driven repayment plan to qualify for these programs. You can find out more about those plans here.

Borrowers who have been defrauded by for-profit colleges may also apply for borrower defense and receive relief.

These programs won’t be affected by the Supreme Court ruling.

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