Now that the Supreme Court has blocked President Biden’s student loan cancellation proposal, those with loan balances have two things to watch for in the short term.
First, the pandemic-related moratorium on monthly payments will expire by September 1, with the first payment due in October.
Then, there appears to be a glimmer of hope: The Department of Education is trying to set up a new system for calculating the size of those monthly payments. This can reduce the payment of many people. It could cancel the loan sooner, under a system that is different from the one the Supreme Court rejected on Friday.
We have published a guide to restart payments here. The Education Department is likely to provide more details soon. “We urge the department to share any plans as soon as possible so that financial aid professionals are well prepared to assist students,” said Justin Draeger, chief executive of the National Association of Student Financial Aid Administrators.
Student loan experts expect the administration will provide a safety net for borrowers, giving them extra time — at least a three-month grace period — to send in their payments. So if a borrower fails to make the payment within that period, the late payment will not be reported to the credit reporting bureaus. But interest will still start accruing in September, pushing borrowers into even more debt.
There are steps borrowers can take now to avoid that situation altogether. Most borrowers who are concerned that they won’t be able to make their payments in October can try to enroll in income-driven repayment planIn which payments are linked to income and family size.
The Biden administration’s proposed plan would modify an existing income-driven plan known as REPAYE, and could reduce the size of monthly payments for millions of borrowers by more than half. education Department offer issued in January, and a final rule—which may have changed from the initial proposal—was sent to the White House. for observation On 23 May.
This means a final version of the plan is close to being published, which could happen in the coming weeks (you can find our guide to the initial proposal here).
But even after the release of the final plan, it will be challenging to make it operational by October. Now that the debt cancellation proposal has been blocked, the Biden administration is expected to try to expedite the process and implement the plan in phases. It’s still unclear how close the plan will be to being ready – and it’s even possible that lawsuits could emerge in an attempt to block it.