Supreme Court student loan hearing: What you need to know

By CORA LEWIS
Associated Press

NEW YORK (AP) — The fate of President Joe Biden’s student loan forgiveness plan is up in the air after Supreme Court justices questioned whether his administration has the authority to broadly cancel federal student loans.

At stake is debt forgiveness for up to 43 million Americans. Nearly half could have their federal student debt wiped out entirely. But in hearing two cases challenging the plan, the Republican-appointed majority on the Supreme Court seemed likely to block it.

Already, about 26 million people have applied for debt forgiveness, and 16 million applications have been approved. However, because of court rulings, all the relief is on hold. The Education Department stopped taking applications in November because of legal challenges to the plan.

The Supreme Court will have the ultimate say on whether Biden can wipe out student loan debt, fulfilling a campaign pledge he made in 2020. Here’s what to know if you’re waiting for debt relief:

WHEN WILL THE SUPREME COURT DECIDE THE STUDENT LOANS CASES?

The Supreme Court heard arguments Tuesday, but there won’t be a decision for months. The court usually issues all of its decisions by the end of June.

WHO QUALIFIES FOR BIDEN’S STUDENT LOAN FORGIVENESS?

The plan Biden announced last August would cancel $10,000 in federal student loan debt for those earning less than $125,000 or households with less than $250,000 in income. Pell Grant recipients, who typically come from lower-income households, would receive an additional $10,000 in debt forgiveness, for a total of $20,000.

Federal student loans for both undergraduate and graduate school, including Graduate PLUS loans, can qualify for forgiveness under the plan.

Borrowers would qualify if their federal student loans were disbursed before July 1.

Under the plan, if you paid off your loans during the pandemic, you can request a refund and then apply for forgiveness.

HOW DO I KNOW IF MY STUDENT LOANS WILL BE FORGIVEN?

The relief under Biden’s plan is on hold until the court cases finish — even for people who applied for student loan forgiveness before courts blocked it.

If the justices allow the plan to proceed, Biden’s debt forgiveness is for borrowers holding federal student loans, not private loans.

To determine what kind of loans you hold, log in to the Federal Student Aid website, studentaid.gov. Direct loans, including Parent Plus loans, qualify. Some older FFEL and Perkins loans are also eligible, if owned by the Department of Education. For people holding older FFEL loans, consolidating those loans can lead to credit for forgiveness under certain income-driven repayment plans.

If you’ve already applied and been approved, you should have received an email telling you this. But you’ll still have to wait for the Supreme Court ruling to find out whether those loans will be wiped out for good.

HOW IS THE SUPREME COURT EXPECTED TO RULE ON STUDENT LOANS?

The Supreme Court is dominated 6-3 by conservatives, and those justices’ questions in oral arguments Tuesday showed skepticism about the legality of Biden’s student loans plan. The court seemed likely to rule in a way that would doom the student loan forgiveness plan.

Several conservative justices suggested the administration had exceeded its authority with the program. Chief Justice John Roberts mentioned the program’s cost — an estimated $400 billion over 30 years — and its wide impact on millions of Americans. Most observers, he said, would think “that’s something for Congress to act on.”

Conservative Justice Brett Kavanaugh pointed out Congress had declined to pass student loan relief, so Biden did it himself. That, he said, “seems problematic.”

The only hope for Biden’s plan appeared to be a legal technicality. The oral arguments left a slim possibility that the court finds the states and people challenging Biden’s plan lacked the legal right to sue. We won’t know for sure how the court is going to rule until the decision is announced.

WHO WOULD PAY FOR BIDEN’S STUDENT LOAN FORGIVENESS?

Ultimately, the cost would become part of the equation used to figure the federal deficit. Biden’s plan for student debt cancellation would cost the federal government about $400 billion over the next 30 years, according to the latest estimates from the Congressional Budget Office. The office cautioned that its estimates are “highly uncertain” because it’s hard to know exactly how much borrowers would have paid in the future without Biden’s action.

Biden has said those costs would be offset by other measures to reduce the federal deficit. He has pointed to a bill signed into law in August that’s estimated to raise around $740 billion over a decade, from a combination of government savings from lower drug prices, higher taxes on large corporations, levies on companies that repurchase their own stock and stronger IRS tax collections.

WILL THE PAUSE IN STUDENT LOAN PAYMENTS CONTINUE?

During the pandemic, two presidential administrations paused payments for those holding federal student loans. The pause has been extended to as late as this summer.

Payments are set to resume, along with the accrual of interest, 60 days after the court cases are resolved. For example, if legal issues remain at the end of June, payments would restart at the end of August. If the court issues a ruling in March, repayment could restart as early as May or June.

If the cases haven’t been resolved by June 30, payments will start 60 days after that.

IS IT POSSIBLE BIDEN’S STUDENT LOAN FORGIVENESS WON’T HAPPEN AT ALL?

Yes. Biden’s student loan forgiveness might not happen, period. Other loan forgiveness programs, such as those for teachers or nonprofit workers, or for people who have been defrauded by a for-profit college, would continue.

The administration has not given insight into a Plan B if it loses the Supreme Court cases.

“We’re focused on ‘Plan A’ because we’re confident in our legal authority to carry out this program,” White House spokeswoman Olivia Dalton told reporters aboard Air Force One on Tuesday.

Still, advocates point to other ways the debt might be forgiven, including through the Higher Education Act.

HOW SHOULD I PREPARE FOR STUDENT LOANS PAYMENTS TO RESTART?

Betsy Mayotte, President of the Institute of Student Loan Advisors, encourages people not to make any payments until the pause has ended. Instead, she says, put your payment amount into a savings account.

“Then you’ve maintained the habit of making the payment, but earning a little bit of interest as well. There’s no reason to send that money to the student loans until the last minute of the 0% interest rate.”

Mayotte recommends borrowers use the loan-simulator tool at StudentAid.gov or the one on TISLA’s website to find the payment plan that best fits their needs. The calculators tell you what your monthly payment would be under each available plan, as well as your long-term costs.

“I really want to emphasize the long-term,” Mayotte said.

Sometimes, when borrowers are in a financial bind, they’ll choose the option with the lowest monthly payment, which can cost more over the life of the loan, Mayotte said. Rather than “setting it and forgetting it,” she encourages borrowers to reevaluate when their financial situation improves.

CAN I SET UP A PAYMENT PLAN FOR MY STUDENT LOANS?

Yes, but some advocates encourage borrowers to wait for now, since there’s no financial penalty during the pause on payments and interest accrual.

That said, Katherine Welbeck of the Student Borrower Protection Center recommends logging on to your account and making sure you know the name of your servicer, your due date and whether you’re enrolled in the best income-driven repayment plan.

If your budget doesn’t allow you to resume payments, it’s important to know how to navigate the possibility of default and delinquency on a student loan. Both can hurt your credit rating, which would make you ineligible for additional aid.

If you’re in a short-term financial bind, you may qualify for a deferment or a forbearance — allowing you to temporarily suspend payment.

HOW CAN I REDUCE COSTS WHEN PAYING OFF MY STUDENT LOANS?

— If you sign up for automatic payments, the servicer takes a quarter of a percent off your interest rate, Mayotte says.

— Income-driven repayment plans aren’t right for everyone. That said, if you know you will eventually qualify for forgiveness under the Public Service Loan Forgiveness program, it makes sense to make the lowest monthly payments possible, as the remainder of your debt will be cancelled once that decade of payments is complete.

— Reevaluate your monthly student loan repayment during tax season, when you already have all your financial information in front of you. “Can you afford to increase it? Or do you need to decrease it?” Mayotte said.

— Break up payments into whatever ways work best for you. You could consider two installments per month, instead of one large monthly sum.

ARE STUDENT LOANS FORGIVEN AFTER 10 YEARS?

If you’ve worked for a government agency or a nonprofit, the Public Service Loan Forgiveness program offers cancellation after 10 years of regular payments, and some income-driven repayment plans cancel the remainder of a borrower’s debt after 20 to 25 years.

Borrowers should make sure they’re signed up for the best possible income-driven repayment plan to qualify for these programs. You can find out more about those plans here.

Borrowers who have been defrauded by for-profit colleges may also apply for borrower defense and receive relief.

These programs won’t be affected by the Supreme Court ruling.

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