Student Loan Forgiveness Has Faced A Series Of Legal Actions
Since President Biden announced his decision to forgive $10,000 of student loan relief for those who qualify, several groups have taken legal action to try to prevent it from going through.
The U.S. Eighth Circuit Court of Appeals is considering a motion brought by six Republican-led states to halt the program.
Arkansas, Missouri, Nebraska, Iowa, Kansas, and South Carolina argued in their lawsuit that federal forgiveness would cause harm to state-managed loan companies that take charge of some federal loans.
The student loan forgiveness plans cost is an estimated $240 billion. Legislators and policy leaders have long disagreed on how effective loan forgiveness would be in the economy as a whole.
How Does The White House Legally Defend The Onetime Student Loan Debt Relief Program
The Department of Education contends that its onetime student loan debt relief plan is protected by the Higher Education Relief Opportunities for Students Act of 2003, also known as the HEROES Act. That law authorizes the Secretary of Education to change any regulations related to any student financial assistance programs for Americans who “suffered direct economic hardship as a direct result of a war or other military operation or national emergency.”
Biden announced his onetime student loan debt relief plan with Secretary of Education Miguel Cardona on Aug. 24.
The White House says that the COVID-19 public health emergency gives the Department of Education the legal basis to cancel student loan debt under the HEROES Act.
The US has been in a public health emergency ever since the Secretary of Health and Human Services declared one because of COVID-19 on . That emergency declaration has been extended many times since, most recently on .
What Borrowers Should Do
Theres no true indication that the Biden administration is considering another extension beyond May 1 at this point, Adam S. Minsky, a student loan lawyer, tells Fortune.
That being said, anything is possiblelast year, the administration repeatedly characterized the extension to Jan. 31, 2022 as the final extension, only to extend it yet again at the last minute, Minsky says.
But because theres still so much that remains unknown, borrowers should prepare to resume payments in May, student loan experts agree.
I would not advise people to plan based on an assumption that there will be an extension of the program, Bruce McClary, senior vice president of communications for the National Foundation for Credit Counseling , tells Fortune. The best advice for student loan borrowers who are taking full advantage of the forbearance period is to plan for a resumption of payments in May.
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Can I Apply For An Income
Yes, you can apply for an IDR plan during the payment pause. Your request will take effect January 1, 2023, theday after the payment pause will end. Applying now may help you by allowing you to base your IDR plan on yourcurrent income. If you apply now, you may also get your request processed before the potential rush ofrequests when payments resume.
If you’re interested in applying for an income-driven repayment plan, you may apply atStudentAid.gov. You can self-certify your eligibility online. You can also call Great Lakes at 236-4300 to provide the information needed to request an IDR plan over the phone.
Biden Predicts Student Loan Borrowers Will Start Receiving Relief Within Weeks Despite Court Challenge
President Joe Biden predicted Thursday that student loan borrowers will start receiving relief which is currently on hold over a court challenge within weeks, projecting confidence that his administration will win the challenge.
Were going to win that case. I think in the next two weeks youre going to see those checks going out, Biden told Nexstars Washington Correspondent Reshad Hudson.
The Biden administration started taking student debt forgiveness applications on October 14 and officials have said it could take weeks to process and grant relief.
Eligible borrowers wont be receiving actual checks. Instead, they will see up to a $20,000 reduction in their student debt balances.
The Department of Education has told borrowers who are eligible for automatic debt relief, without filing an application, not to expect the debt cancellation before November 14.
A federal appeals court put a temporary hold on the administrations student loan forgiveness program last week, which barred the government from canceling loans covered under the new policy while the court considers a challenge brought by six Republican-led states. The Biden administration is also facing lawsuits from Arizona Attorney General Mark Brnovich, and conservative groups such as the Job Creators Network Foundation and the Cato Institute.
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I’m Already On An Idr Plan My Income Is Substantially Lower Than Before The Covid
Yes, you sure can. If your income has changed significantly, you can request a new payment amount based on your current income. To do so, visitStudentAid.gov,select the button next to “Recalculate my monthly payment,” and complete the recalculation request. You canalso call Great Lakes at 236-4300 to request an IDR plan recalculation over the phone. If you areapproved for a lower payment, after the payment pause ends, your monthly payments will resume at the newlower amount.
Which Student Loans Are Currently Paused
The moratorium on student loan payments and interest includes all federally held student loans, regardless of what company is servicing the loan. Eligible student loans include:
- Direct federal student loans
- Federal Family Education Loan program loans held by the Department of Education, aka FFEL
- Federal Perkins Loans held by the Department of Education
- Defaulted FFEL loans not held by the Department of Education
- Defaulted Health Education Assistance loans, aka HEAL
Student loans that are not eligible include:
- Nondefaulted FFEL loans not held by the Department of Education
- Federal Perkins Loans not held by the Department of Education
- Nondefaulted HEAL loans
- Private student loans
If your student loans are eligible, payments and interest were automatically paused on March 13, 2020. If you’re not sure whether your loan payments are paused or not, contact your loan servicer.
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Review Other Options To Pause Repayment
The federal governments special administrative forbearance isnt the only way to press pause on your repayment. There are all sorts of deferment and forbearance options, including:
|If youre receiving welfare benefits, earning especially low income or serving in the Peace Corps|
|General forbearance||Up to 12 months at a time for a maximum of three years||Granted at your loan servicers discretion based on your financial challenges, medical expenses, employment or other factors|
|Student loan debt burden forbearance||Up to 12 months at a time for a maximum of three years||If your monthly federal loan dues are greater than 20% of your gross income|
Unlike the special administrative forbearance awarded to most federal loan borrowers in March, the above options
- must be applied for and are never automatically granted.
- accrue and capitalize interest in most cases, except on subsidized loans and Perkins loans during a deferment.
- can be reported to the credit bureaus and possibly affect your credit score.
Will There Be Another Extension
At this point, it doesnt look likely that the Education Department will extend the forbearance period for the eighth time, especially due to the mass forgiveness measure. While another extension is not impossible, federal student loan borrowers should prepare to resume making regularly scheduled payments in January and be on the lookout for the forgiveness application thats expected to be released in October.
Youll receive a billing statement from your loan servicer at least 21 days before your first payment is due, and you may receive additional communication about the end of the forbearance period before that. You can use these final few months of the payment pause to make interest-free payments, focus on private student loan payments or pay down high-interest debt, like credit card debt.
However, if youre concerned about making payments again in January, you have options. If youre looking for a lower monthly payment, consider enrolling in an income-driven repayment plan or Public Service Loan Forgiveness which has temporarily loosened its eligibility requirements through Oct. 31 or apply for federal forbearance if you dont have the resources to start up payments. You can also think about refinancing with a private lender if you can get a lower interest rate and you arent worried about losing federal benefits.
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Why Its A Bad Idea To Pay Now If You Are Going For Student Loan Forgiveness
If you are going for student loan forgiveness, your objective is to minimize your monthly payments as much as possible. While payments and interest are on hold, each of these months will count as credit toward your forgiveness track even if youre not actually paying any money . For those pursuing PSLF, all you need is qualifying employmentfull-time employment at a non-profit or 501for these months to count as credit.
At this point, youre not required to make a monthly payment on direct federal student loans. This means you shouldnt put money toward your federal loans unless you are trying to pay them off before you reach forgiveness. Each dollar you dont pay to your loans is a dollar you can repurpose any way youd like, whether thats saving for retirement, saving for college, buying a rental property, or purchasing that dream home.
Making payments to your servicer now when youre going for forgiveness is like throwing your dollars into a black hole. Just remember, you want to MAXIMIZE your forgiveness at this point and not pay a penny more.
These months with $0 required monthly payments count toward those 120 payments just as much as those high monthly payments you were making pre-pandemic or those payments youre anticipated to make when your income jumps after training and when the student loan holiday ends.
For Borrowers Who Havent Yet Applied For Student Loan Forgiveness What Should They Do Now
The application remains open for student loan forgiveness, and the White House is encouraging borrowers to continue applying for student debt relief at StudentAid.gov. The Department of Education is still reviewing applications and preparing them for loan servicers.
If you qualify, Farrington suggests filling out the student loan forgiveness application as soon as possible. Theres no reason not to go to StudentAid.gov and apply, he said. It takes minutes and ensures youll get loan forgiveness if this goes through.
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Student Loan Forgiveness On Temporary Hold But You Can Still Apply
Kennith Woods, Staff Reporter|October 25, 2022
On Friday, Oct. 21, the U.S. Eighth Circuit Court of Appeals put a temporary block on President Bidens student debt forgiveness plan. According to the National Public Radio, the block was installed in order to review a motion from six Republican-led states to stop the program.
However, as NPR wrote, the application is still open and the Biden Administration still strongly encourages all eligible Americans to apply for forgiveness. White House Press Secretary Karine Jean-Pierre said in a brief statement following the courts ruling that all the block does is prevent debt from being discharged until the court makes a decision.
For decades, working class Americans have increasingly been unable to afford the cost of higher education, which have skyrocketed over the past 40 years.. According to the Economic Policy Institute, wage-growth within the 10th percentile of workers, or low-wage workers, increased by 8.9 percent since 1979. The 50th percentile of workers, or middle-class workers, have seen their wage grow by 16.8 percent. Meanwhile, according to Forbes.com, since 1980, the average annual college tuition has risen by 180 percent.
Access to the forgiveness application is made through the Federal Student Aid website. Once there, prospective applicants will be met with a brief set of guidelines detailing the amount of debt that will be forgiven and who is and isnt qualified for loan forgiveness.
Adjust Your Repayment Plan Or Monthly Dues If Necessary
Enrolling in an income-driven repayment plan could make your payments more affordable once the student loan freeze ends. IDR plans limit your monthly dues to 10% to 20% of your discretionary income, also accounting for your family size.
And you dont have to wait until January or February to enroll. In fact, you can review your IDR options at any time the governments loan simulator tool could help you decide. After choosing the best repayment option for your situation, you can apply in 10 minutes, free of charge.
If youre already repaying your debt via an IDR plan but have seen a decrease in household earnings , you could recalculate your monthly dues via studentaid.gov.
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If You Want To Continue Making Payments
Borrowers might want to continue making payments on federal loans if they want to pay down their debt faster.
If you do continue making payments, you won’t pay any new interest on your loans during the forbearance. This 0% interest rate will save you money overall, even though your payment won’t be lower.
The full amount of your payment will be applied to the principal balance of your loan once all interest accrued prior to March 13 is paid.
Those sticking to a standard repayment timeline could consider making payments. You likely won’t have much outstanding interest and additional payments can help you chip away at your principal during the break. To preserve your flexibility, we suggest opening a savings account and banking those monthly payments, then making a lump-sum payment against your highest-interest loan when repayment begins.
Borrowers enrolled in income-driven repayment or planning to do so shouldn’t bother making payments now if the ultimate plan is to pay until the loans are forgiven usually 20 or 25 years. If you want to pay off your loans sooner, then paying now could help you lower the total interest you owe on top of your principal.
Borrowers seeking Public Service Loan Forgiveness do not need to make payments until at least Jan. 1, 2023. The months of automatic forbearance will count toward the 120 payments needed for forgiveness.
Contact your loan servicer with any questions about continuing or restarting payments during the forbearance period.
If You Have Ffel Loans
If you have Federal Family Education Loans , you are entitled to receive the no-interest forbearance only if the government owns the loans. This wont be most FFEL borrowers most of the loans from the now-defunct program are commercially held.
You can find out who owns your loans by logging in to studentaid.gov using your FSA ID.
The only way to get the forbearance for commercially held FFEL loans is to consolidate your debt into a new direct loan. But there are downsides to consolidation:
Your repayment term will be extended.
Your interest rate will increase slightly.
Any unpaid interest will capitalize and be added to the total amount you owe.
Temporary interest-free payments may not be worth those additional long-term costs.
Plus, if youre already making payments on an income based repayment plan, those previous payments will no longer count toward forgiveness. Youll have to start all over.
Consolidation can make sense if you have FFEL loans and want to qualify for Public Service Loan Forgiveness. Otherwise, stick with your current loans.
If you’ve experienced a change in income, you can enroll in IBR or recertify early, if you’re already on this plan. IBR will still take into account your spouses income. Your loans are also eligible for unemployment deferment, which may make sense if youve lost your job but expect to start working again soon.
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Rehabilitate Any Loans In Default Before Collections Resume
The CARES Act promised an additional reprieve for federal student loan borrowers in default: a halt to collections and garnishments of wages and other monetary benefits. The Department of Education has also said it would refund $1.8 billion worth of recent seizures.
To avoid such penalties in the future, strategize how to get your loans out of default. Your options for federally owned debt include the following:
|What to know|
|If you have the cash to do it, zero out your balance||Not practical for most borrowers|
I Didn’t Receive A 1098
The 1098-E Student Loan Interest Statement is a record of your interest paid on your federal student loans fora given tax year. You can deduct some or all of your interest paid from your federal tax return, which couldreduce the amount you pay in income tax.
Because the payment pause and 0% interest ratewere extended to cover all of 2021 and 2022, most borrowers have not paid interest inâ and will not receive a statement for â the 2021 and 2022 tax years. Questions pertaining to your specificsituation should be directed to your tax advisor.
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I Cant Afford My Loan Payment What Are My Options
There are many, each with different eligibility rules, conditions and mind-numbing details. But you can think about them as coming in three varieties.
Income-driven repayment plans: These plans depend on your income, yielding monthly payments as low as $0. And after a couple decades of payments, whatever balance youre still carrying is forgiven by the government. These plans will probably be the preferred option for many borrowers who expect to struggle making their payments.
Pause-button options: Borrowers can also request deferment or forbearance, which temporarily put payments on hold though there can be significant added costs in the long run. With forbearance, payments stop but interest still accrues. If the interest is not paid, its added to the loans principal balance. Deferment is similar, but subsidized loans which generally have slightly better terms wont accrue interest while theyre paused.
Forbearance should be a last resort, said Betsy Mayotte, president and founder of The Institute of Student Loan Advisors, which provides free advice to student borrowers. She suggests reserving forbearance as a short-term solution when something throws your budget off track a big car repair, for example, or a high medical bill.