The Supreme Court blocked President Joe Biden’s plan to cancel up to $20,000 each in federal student loan debt for millions of borrowers on Friday, June 30. In a 6-3 decision, the conservative majority ruled the Biden administration overstepped its authority with the plan, which would have cost around $400 billion, according to budget office estimates.
Now that the Supreme Court has made its determination, here are three things student loan borrowers need to know.
When will payments resume?
After more than three years of 0% interest due to a pandemic-related pause, federal student loans will start accruing interest again on Sept. 1.
This resumption date was agreed upon in the debt ceiling deal reached by Biden and House Speaker Kevin McCarthy, which Congress passed in early June.
While interest will start accruing in September, first payments will not be due until October, according to the Education Department. Borrowers will want to use the coming months to reconnect to their student loan servicers and update their accounts and payment information.
“Safety net period” is on horizon
The Education Department is carving out a “safety net period” to ease back into repayment. The plan promises a 12-month “on-ramp” period where borrowers’ credit scores won’t get dinged if they fail to make payments on their loans starting in October.
The Biden administration is worried about an overwhelming amount of delinquencies and defaults once repayment resumes.
Republicans, meanwhile, have blasted reports of the plan. Louisiana Sen. Bill Cassidy called it a “direct violation of the debt ceiling agreement” in an interview with Politico.
Changes to income-driven repayment intact, for now
The Supreme Court decision does not touch the planned changes to income-driven repayment, which could cut participants’ payments in half.
If opted in, the plan calculates the monthly amount due based on the borrower’s income. Those individuals making less than $32,805 per year would have a monthly payment of $0.
Borrowers hoping to enroll in the income-driven repayment plan, forbearance or other options will want to connect with their student loan servicer before repayment resumes this fall.
One more thing
On Friday afternoon, Biden announced he would attempt to cancel student debt for “as many borrowers as possible” using authority through the Higher Education Act.
“This new path is legally sound,” Biden said. “It’s going to take longer, but in my view, it’s the best path that remains.”
Borrowers who previously applied and were approved for one-time student debt relief would not necessarily qualify under the new program. The department said it is still working out specific parameters and that borrowers should plan on paying loans in the meantime.
