- The Biden administration’s student debt cancellation plan is locked in litigation.
- That means Americans shouldn’t expect relief any time soon.
- They should be ready to start repayments again on January 1. Here’s how.
Now that millions of Americans are unlikely to get student loan forgiveness by the end of the year, they should prepare (and quickly) to start repaying again, experts say.
A federal appeals court voted unanimously on Monday to issue a nationwide injunction barring the Biden administration’s student loan debt relief program until the matter is resolved in court. The Biden administration could ask the Supreme Court to lift 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 anyone with student debt will likely have to start paying back on Jan. 1 unless the administration can devise a new plan that can avoid court battles, experts say.
Even if the administration comes up with a new plan, it’s likely to be narrower than the one stuck in court, which is why “I’m telling people to expect to start paying again,” said Brian Marks, executive director of the program. in entrepreneurship and innovation at the University of New Haven in Connecticut.
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How many indebted Americans does this affect?
A simple request for debt cancellation was launched around mid-October. About 26 million Americans had already applied for debt forgiveness and 16 million people had already received approval for debt relief when the Department of Education stopped taking applications on November 11, the day after from the day a Texas federal judge ruled the debt forgiveness 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 had their remaining balance forgiven, would have been eligible for relief.
What is the income limit for student loan debt forgiveness?
The administration’s plan, announced last summer, would have canceled $10,000 in federal student loans, including Parent Plus loans, for those earning less than $125,000 or households with incomes below $250,000. $. Pell Grant recipients, who typically demonstrate greater financial need, would get an additional $10,000 in debt forgiveness.
What should people do to prepare to start repaying again?
There isn’t much time between now and the expiration of the pause on student debt repayment on Dec. 31, but people need to “get their finances in order,” Marks said.
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Here are some steps to follow before the end of the year:
- Start reducing your expenses and increasing your savings, Marks said, acknowledging that it’s been a tough year with the highest inflation in a generation. The times “call for caution and creativity,” he said, recalling when he and his wife first married and had little money, took long walks or spent their evening of grocery shopping instead of going to the movies – neither of which costs a lot of money.
- Know what your payments will look like and whether you will be able to afford them. If not, and if you don’t qualify for the discount, it may be a good idea to refinance at a lower interest rate if possible before payments restart, said Randy Lupi, finance at Equitable Advisors. Just note, however, that once the loans are refinanced with a private company, they will no longer be eligible for any federal rebate programs, he said.
- Check your eligibility for other government loan relief programs. “For example, people in the nonprofit field are likely eligible for the Public Service Loan Forgiveness, which has no cap on the amount of the forgiveness and should take that time to ensure that they are properly registered,” Lupi said.
- Consider repaying your loan before January 1. Because the student loan repayment pause includes a 0% interest rate, 100% of payments made during the pause go to your principal, said Eric Schuppenhauer, head of national banking and loans at Citizens Bank. . If you reduce your loan amount, you may be able to reduce 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 lower your monthly payments.
- Check with your employer. A survey by the Employee Benefits Research Institute last year showed that 17% of employers offer student loan assistance and 31% plan to do so. For example, Aetna matches US-based employee student loan payments up to $2,000 per year for a lifetime maximum of $10,000 for qualifying loans; PwC offers partners and senior associates up to $1,200 a year for student debt; and Google matches up to $2,500 per year.
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Medora Lee is a money, markets and personal finance reporter at USA TODAY. You can reach her at [email protected] and sign up for our free Daily Money newsletter for personal finance tips and business news Monday through Friday mornings.