- The Biden administration’s student debt relief plan is stuck in litigation.
- That means Americans shouldn’t expect relief anytime soon.
- They should be ready to start repayments again on January 1st. That’s how.
Now that millions of Americans are unlikely to get student loan forgiveness by year’s end, they should prepare (and quickly) to start paying back again, experts say.
A federal appeals court voted unanimously on Monday to issue a nationwide injunction banning the Biden administration’s student loan debt relief program until the matter is resolved in court. The Biden administration could also ask the Supreme Court to reverse the injunction. Either way, a resolution could take months and certainly won’t come by the end of the year, when the student loan repayment break expires.
That means everyone with student debt will likely have to start repayments on Jan. 1, unless the administration can come up with a new plan that could avoid court battles, experts say.
Even if the administration comes up with a new plan, it will likely be narrower than the one stuck in the courts, which is why “I’m telling people to expect to start paying again,” said Brian Marks, executive director of the Entrepreneurship Program and innovation at the University of New Haven.
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How Many Americans Does Student Debt Affect?
A simple application for debt relief was launched around mid-October. About 26 million Americans had already asked for forgiveness and 16 million people had already received debt relief approval when the Department of Education stopped accepting applications on Nov. 11, the day after a federal judge in the Texas has declared the debt relief plan illegal in a separate lawsuit.
The White House estimated over the summer that up to 43 million borrowers, including about 20 million borrowers who would have their entire remaining balance canceled, could be eligible for relief.
What is the income limit for student loan debt relief?
The administration’s plan, announced last summer, would have canceled $10,000 in federal student loans, including Parent Plus loans, for those making less than $125,000 or families with less than $250,000 in income. Pell Grant recipients, who typically demonstrate greater financial need, would get an additional $10,000 in debt forgiveness.
What should people do to get ready to start repaying again?
There isn’t much time between now and when the pause on student debt repayments expires on Dec. 31, but people need to “get their financial house in order,” Marks said.
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Here are some steps to take before the end of the year:
- Start cutting expenses and increasing savingsMarks said, acknowledging it was a tough year with the highest inflation in a generation. The times “require prudence and creativity,” he said, recalling when he and his wife first got married and had little money, took long walks or spent the evening shopping for groceries instead of the movies — neither of the two cost a lot.
- Find out what your payments will look likeand if you will be able to afford them. If not, and if you’re ineligible for forgiveness, it might make sense to refinance at a lower interest rate, if possible, before payments restart, Lupi said. Just note, however, that once the loans are refinanced with a private company, they will no longer be eligible for any federal forgiveness programs, he said.
- Check your eligibility for other government loan forgiveness programs. “For example, people in the non-profit sector likely qualify for public service loan forgiveness, which doesn’t have a cap on the amount of the forgiveness, and they should take this time to make sure they’re properly enrolled,” said Lupi .
- Consider repaying the loan before January 1st. Because the student loan repayment pause includes a 0 percent interest rate, 100 percent of payments made during the pause go to your principal, said Eric Schuppenhauer, head of national banks and loans at Citizens Bank. If you reduce the loan amount, you may be able to shorten the loan term and save money in the long run.
- Check your eligibility for income-based repayment plans. Federal student loans offer income-based repayment plans that can reduce your monthly payments.
- Check with your employer. An Employee Benefit Research Institute survey last year showed that 17 percent of employers currently offer student loan assistance, and another 31 percent plan to do so. For example, Aetna offsets U.S.-based student loan payments up to $2,000 per year for up to $10,000 for eligible loans, PwC offers associates and senior associates up to $1,200 per year for student debt and Google matches up to $2,500 a year.
Medora Lee is a money, markets and personal finance reporter at USA TODAY. You can reach her at firstname.lastname@example.org and sign up for our free Daily Money newsletter for personal finance tips and business news Monday through Friday mornings.