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What the debt ceiling deal could mean for student loan borrowers

<i>Jon Elswick/AP</i><br/>The draft of a bill that President Joe Biden and House Speaker Kevin McCarthy negotiated to raise the nation's debt ceiling is photographed on May 29.
Jon Elswick/AP
The draft of a bill that President Joe Biden and House Speaker Kevin McCarthy negotiated to raise the nation's debt ceiling is photographed on May 29.

By Katie Lobosco, CNN

Washington (CNN) — If passed into law, the bipartisan debt ceiling deal will dash any hope borrowers might have that the federal student loan payment pause would be extended for a ninth time.

The Biden administration has repeatedly said the pandemic pause on federal student loan payments would end later this year, but officials have said that before and gone on to extend the pause again.

This time, Education Secretary Miguel Cardona may not be able to do so. The agreement to address the debt limit includes a provision that specifically prevents him from extending the pause on payments again, according to the bill text.

The pause “shall cease to be effective” 60 days after June 30, the bill reads.

That’s roughly in line with the Biden administration’s plan to resume payments either 60 days after June 30 or 60 days after the Supreme Court rules on the separate student loan forgiveness program – whichever comes first. The justices are expected to rule in late June or early July.

The one-time student loan forgiveness program promises up to $20,000 of debt relief for low- and middle-income borrowers if the Supreme Court allows it to move forward. While House Republicans have previously voted to block the program – a bill Biden has pledged to veto – the debt ceiling deal leaves it alone.

Restarting payments will be an unprecedented task

When the pause ends later this year, roughly 44 million people will have to restart making payments on their federal student loans – and there is some concern about whether the process will go smoothly.

Many people may be confused about how much they owe, when to pay and how. Millions of borrowers will have a different servicer handling their student loans since the last time they made a payment. Missing payments can result in fees.

Congress appropriated the Federal Student Aid office about $800 million less than what the Biden administration had asked for this year, keeping the office’s operating budget the same as last year even though there will be more work to do. Some student loan servicers have recently cut back on customer service hours, adding to the fear of a bumpy return to repayment.

Student loan experts recommend that borrowers reach out to their student loan servicer with any questions about their loans as soon as possible, especially if they are interested in enrolling in an income-driven repayment plan. Those plans, which set payments based on income and family size, can lower monthly payments but require borrowers to submit some paperwork.

Federal student loan borrowers can check the FSA website for updates on resuming payments.

Student loan forgiveness still on the table

All eyes are on the Supreme Court as borrowers await to see if the Biden administration will be allowed to move forward with its student loan forgiveness program.

Under the proposal, individual borrowers who made less than $125,000 in either 2020 or 2021 and married couples or heads of households who made less than $250,000 a year could see up to $10,000 of their federal student loan debt forgiven.

If a qualifying borrower also received a federal Pell grant while enrolled in college, the individual is eligible for up to $20,000 of debt forgiveness.

But several lawsuits argue that the Biden administration is abusing its power and using the Covid-19 pandemic as a pretext for fulfilling the president’s campaign pledge to cancel student debt.

No debt has been canceled yet. But if the Supreme Court allows the program to take effect, it’s possible the government moves quickly to forgive the debts of 16 million borrowers who the administration already approved for relief.

If the justices strike down Biden’s student loan forgiveness program, it could be possible for the administration to make some modifications to the policy and try again – though that process could take months.

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