Impact of the Supreme Court Ruling on Student Loans

The recent Supreme Court ruling on student loans has significant implications for borrowers across the country. The court found that the Biden administration exceeded its authority in attempting to cancel or reduce student loan debt, effectively putting an end to the $400 billion plan. Under this plan, up to $20,000 in federal student loans would have been canceled for 43 million people, with 20 million individuals having their remaining debt erased entirely.

In the absence of congressional intervention, these Americans will be required to resume loan payments starting in October. However, borrowers concerned about their financial situations still have alternative options. Despite the rejection of Biden’s plan, other loan forgiveness programs offered by the government remain in effect.

Here’s what you need to know about how this decision will affect you:

1. When will student loan payments resume?
   Student loan payments, which have been frozen for the past three years due to the pandemic, are scheduled to restart in October. It is important to note that interest will begin accruing on September 1.

2. How should I prepare?
   Betsy Mayotte, the president of the Institute of Student Loan Advisors, advises against making any payments until the pause on payments has ended. Instead, she suggests putting the money you would have paid into a savings account, allowing you to earn some interest while maintaining the habit of making payments. To find a payment plan that suits your needs, Mayotte recommends using the loan-simulator tool available on StudentAid.gov or the website of TISLA (The Institute of Student Loan Advisors). These calculators provide information on monthly payments and long-term costs for each available plan.

3. What if I can’t or don’t want to pay?
   If your budget doesn’t allow you to resume payments, it is crucial to understand the options for dealing with potential default and delinquency on your student loan. Both default and delinquency can harm your credit rating and make you ineligible for additional aid. If you find yourself in a short-term financial bind, you may qualify for deferment or forbearance, which allows you to temporarily suspend payments. It is important to note that interest continues to accrue during deferment or forbearance, and these options can impact potential loan forgiveness opportunities. Depending on the terms of your deferment or forbearance, it may be beneficial to continue paying the interest during the payment suspension.

4. Are there other programs available to help with student loan debt?
   If you have worked for a government agency or a nonprofit organization, the Public Service Loan Forgiveness program offers cancellation after ten years of regular payments. Additionally, some income-driven repayment plans can cancel the remaining debt after 20 to 25 years of payments. To qualify for these programs, borrowers should ensure they are enrolled in the most suitable income-driven repayment plan. Borrowers who have been defrauded by for-profit colleges can also apply for borrower defense and receive relief. These programs remain unaffected by the Supreme Court ruling.

5. What is an income-driven repayment plan?
   An income-driven repayment plan determines your monthly student loan payment based on your income and family size, aiming to make it affordable for you. It considers various expenses in your budget, and most federal student loans are eligible for at least one of these plans. Typically, your payment amount under an income-driven plan is a percentage of your discretionary income, and if your income is low enough, your monthly payment could be as low as $0. To begin repaying your federal student loans under an income-driven plan, you need to complete an application on the Federal Student Aid website.

6. How can I reduce costs when paying off my student loans?

   • Signing up for automatic payments can result in a quarter-percent reduction in your interest rate.
   • Income-driven repayment plans may not suit everyone, but if you anticipate qualifying for forgiveness under the Public Service Loan Forgiveness program, it is advisable to make the lowest monthly payments possible, as the remaining debt will be canceled after completing the required decade of payments.
   • Reevaluate your monthly student loan repayment during tax season when you have all your financial information available. Assess if you can afford to increase or decrease your payments based on your current financial situation.
   • Consider breaking up your payments into multiple installments per month instead of a single large monthly payment.

Please note that The Big Big News receives support from the Charles Schwab Foundation for educational and explanatory reporting aimed at improving financial literacy. The foundation operates independently of Charles Schwab and Co. Inc. The AP is solely responsible for its journalism.

Frequently Asked Questions (FAQs) about student loan decision

More about student loan decision

• StudentAid.gov – Official website for student financial aid information and resources.
• TISLA (The Institute of Student Loan Advisors) – Website offering loan-simulator tools and information on repayment plans.
• Public Service Loan Forgiveness Program – Details about the loan forgiveness program for individuals working in public service.
• Income-Driven Repayment Plans – Information on the different income-driven repayment plans available.
• Borrower Defense to Repayment – Details about the borrower defense program for borrowers defrauded by for-profit colleges.
• Federal Student Aid – Comprehensive information and resources on federal student aid programs.