WHAT HAPPENS NOW? While the application for relief has been removed from the Federal Student Aid website, applications already filed are on hold while the appeal continues through the courts. “The courts have issued orders blocking our student debt relief program,” the Department of Education said on its website. “As a result, we are currently not accepting applications. We seek to overturn these orders.” A federal judge in Texas ruled that the plan exceeded the White House’s authority. Before that, a federal appeals court in St. Louis put the plan on hold while it considers a challenge from six Republican-led states. But advocates believe the administration will succeed in court. “We’re really confident that they’re going to find a way forward to cancel people’s debt,” said Katherine Welbeck at the Center for Student Loan Protection. Experts say student loan forgiveness has the potential to end up in the Supreme Court, meaning this could be a long process. WHEN DO PAYMENTS RESUME? Most people with student loan debt have not been forced to make payments during the coronavirus pandemic, but payments are set to resume, along with accrued interest, in January. Biden had previously said the payment freeze would not be extended again, but that was before the courts halted his plan. He now faces mounting pressure to continue the hiatus as legal challenges to the program continue. WHAT IF I ALREADY HAVE A REQUEST FOR ANALYSIS? More than 26 million people applied for cancellation in less than a month, according to the Department of Education. If you are one of them, you don’t need to do anything more right now. About 16 million people have already had their applications approved, according to the Biden administration. However, due to the lawsuits, none of the relief has actually been delivered. The Department of Education “will quickly process their relief once we prevail in court,” said White House press secretary Karin Jean-Pierre. WHAT IF I HAVEN’T REQUESTED AN ANALYSIS YET? For those who have not yet applied, the debt forgiveness application is no longer online. However, there are still steps people can take to ensure their debt is canceled if the appeal is successful, according to Welbeck. “People will still have to check their eligibility,” he said. “As the news changes, people should look out for updates from the Department of Education.” You can sign up to receive the latest from the Federal Student Aid website here. WHO APPLIES, SHOULD THE APPEAL SUCCEED? The debt relief plan announced in August would cancel $10,000 of student loan debt for those with less than $125,000 or households with incomes of less than $250,000. Recipients of Pell Grants, who typically demonstrate greater financial need, will receive an additional $10,000 in debt forgiven, for a total of $20,000. Borrowers qualify if their loans are disbursed before July 1. About 43 million student loan borrowers are eligible for some debt relief, with 20 million who could have their debt written off entirely, according to the administration. ARE THERE OTHER WAYS TO CANCEL? For those who have worked for a government agency or nonprofit organization, the Public Service Loan Forgiveness program offers cancellation after 10 years of regular payments, and some income-based repayment plans cancel the borrower’s remaining debt after 20 to 25 years, according to Welbeck. “Borrowers should make sure they sign up for the best possible income-based repayment plan,” Welbeck said. In July, management will review and adjust some of the accounts enrolled in these plans. You can learn more about these plans here. Borrowers defrauded by for-profit schools can also file for borrower defense and get relief on that account, Welbeck said. SHOULD I CONTINUE PAYMENTS WHEN THE PAYMENT STOP IS ENDED? Advocates, including the Student Loan Protection Center, are still urging the president to extend the pandemic-era payment freeze, arguing that students are entitled to the promised cancellation before the January repayment date. That said, Welbeck recommends logging into your account, making sure you know who your servicer is, your due date, and whether you’re enrolled in the best income-based repayment plan as you continue to make payments. The Student Borrower Protection Center is hosting regular webinars on how to keep up with the changing policy in the coming months. You can sign up for them here. If your budget won’t allow you to keep up with the payments, it’s important to know how to navigate the possibility of default and delinquency on a student loan. You can read more about them here. Both can hurt your credit score, which would make you ineligible for additional help. If you are in a short-term financial commitment, you may qualify for deferment or forbearance. With either of these options, you can talk to your servicer about ways to temporarily suspend your payments. You can learn more about these options here. WHAT ELSE SHOULD I KNOW? Watch out for scams and only get information from reputable sources, such as the Department of Education’s Federal Student Aid website. IS IT POSSIBLE NOT TO DELETE THE DEBT? Yes. The issue of debt cancellation is now before the courts. The administration is not saying whether or not it is exploring other options to write off the debt if it loses its appeals. But advocates point to other ways debt can be forgiven, including through the Higher Education Act. HOW DO I PREPARE TO RESTART MY STUDENT LOAN PAYMENTS? Betsy Mayotte, President of the Institute of Student Loan Counselors, encourages people not to make payments until the moratorium is over. “I’ve been telling people to pretend they’re paying off their student loan, but put it in an interest-bearing account for now if you can,” she said. “Then you’ve kept the habit of making the payment, but also earning some interest. There’s no reason to send that money to student loans until the last minute of zero interest.” Mayotte recommends that borrowers use the loan simulator tool on StudentAid.gov or the one on TISLA’s website to find the repayment course that best suits their needs. Once you’ve linked your details, it tells you what your monthly payment will be for each available plan, as well as what the long-term cost is. “I really want to emphasize the long term,” Mayotte said. “I often see people who may be struggling financially. They will find a lower monthly repayment option and then ‘Set it and forget it’. Mayotte encourages people to switch to higher payments if their financial situation stabilizes so that the loan does not cost more in the long run. Other useful tips that can reduce costs for borrowers: — If you sign up for automatic payments, the service takes a quarter percent off the interest rate, according to Mayotte. — Income-based repayment plans are not suitable for everyone. That said, if you know you’ll eventually qualify for forgiveness under the Public Service Loan Forgiveness Program, it makes sense to make the lowest possible monthly payments since your debt balance will be canceled once that decade of payments is complete. — Reevaluate your monthly student loan repayment at tax time, when you already have all of your financials in front of you. “Can you increase it? Or should you tone it down?” Mayotte said. “Always look at your long-term student loan management strategy.” — Split up the payments in whatever way is best for you, whether that means making two installments over the course of the month so it’s not a big lump sum at the end or beginning, or setting aside cash in envelopes for specific purposes. “Even if it’s an extra $5 or $20 a month, that’s a good strategy,” Mayotte said. “If they can afford to pay a little more a month – the more you pay and the faster you pay, the less you’ll pay in the long run.” Mayotte gave an example of a borrower with higher education debt in the six figures. She was recently married and she and her husband and children decided to save every five dollar bill in a cookie jar to go towards the loans. “That added up to a few hundred more dollars each quarter,” Mayotte said. “Everyone has a different financial personality. There are those who are really good at budgets. There are people who have to play games and fool themselves. And people shouldn’t judge each other’s financial personality.” —- The Associated Press receives support from the Charles Schwab Foundation for educational and explanatory reporting to improve financial literacy. The independent foundation is separate from Charles Schwab and Co. Inc. The AP is solely responsible for its journalism.
