Millions of Americans will now have to prepare to repay the entire balance of their student debt now after the US Supreme Court today overturned the President’s loan-forgiveness plan. After a three year pause in payments and months of uncertainty and legal challenges, the program - which would have wiped out up to $20,000 each in federal student loan debt for qualified borrowers - will not be allowed to move forward.
So what happens now?
First and foremost, according to legal professionals interviewed in The Wall Street Journal, it’s important that borrowers shouldn’t count on any federally-mandated student loan forgiveness at this point and assume and accept that the initiative is completely dead in the water. They should focus exclusively on the resumption of payments coming this summer.
All borrowers with outstanding federal student loan balances will see interest on those loans resume effective September 1st, according to the Education Department. Payments will be due starting in October.
Loan servicers are likely to be inundated with calls in the immediate aftermath and borrowers should be prepared for extremely long wait times and highly clogged phone lines. Bottlenecks and admin errors are almost certain as the faucet of resuming millions upon millions of loans is switched back on.
To prepare for the resumption of loan repayments:
Make sure your account information is up-to-date. Recovering any forgotten passwords and double-checking login info can help streamline your end of the process.
Re-examine your monthly cash flow and discretionary spending to see where you can trim expenses as you reintroduce these payments back into your cash flow and financial planning. Plan for what you think the maximum amount might be, not the minimum.
For most borrowers, this calculation should be fairly straightforward. Basically it’s whatever your payment was before the pause, as interest hasn’t accrued and most people didn’t make voluntary payments during this three-year period.
For those who continued to make payments during the pause or are curious about changing payment plans, they should contact their loan servicer directly well in advance of the payment resumption deadline (now, basically!) to avoid long wait times. The servicer can walk you through any potential changes, payment estimates or plan options.
The Education Department also offers a loan simulator tool that uses information such as income and family size to calculate potential monthly loan payments. From there, you can select between different repayment options and read more about how to move forward.
There are also private advisory services such as Gradfin, who can help you navigate the world of repayment plans and suggest the optimum selection for your circumstances including under the revamped Income Driven Repayment (IDR) plans and other existing forgiveness options, such as the Public Service Loan Forgiveness plan (PSLF) for which Gradfin has a specific program.
Some borrowers might be unable to afford payments because of medical issues, a change in employment or other financial hardships. In these cases some forms of student-loan forbearance are still available to those who qualify, but may not be the best option in all cases as your student loan may still accrue interest during the forbearance period, which could raise the amount of money you have to pay over the course of the life of the loan.
Sources include The Wall Street Journal.
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