15 Aug Is the Supreme Court Making You Repay Your Student Loans?
Are you wondering about whether or not your students loan debt was cancelled? Wondering if you need to start repaying your student loans? This blog breaks it down.
Weren’t My Loans Cancelled by the President?
In August 2022, President Biden announced plans to eliminate some student debt for borrowers earning less than $125,000 a year. People with income under this threshold would receive $10,000 in student debt relief for some federal loans, and people with Pell Grants would receive relief of up to $20,000.
How Did the Supreme Court Respond?
On June 30, 2023, the U.S. Supreme Court struck down President Biden's proposal to forgive the $400 billion in student loan debts. The Court decided that the U.S. Secretary of Education did not have the authority to cancel student loan debt.
Because of the Supreme Court decision, people will still be responsible for paying their student loan debts.
Do I Have to Restart Paying My Loans Now?
Since March 2020, payments for most federal student loans have been paused, as a result of the pandemic. The pause not only stopped monthly payments, but also paused interest for most federal student loans.
On June 3, 2023, the bipartisan debt ceiling deal passed by Congress ended the federal student loan repayment pause. It required the pause end by August 30, 2023.
When Do I Need to Start Repaying My Loans?
The U.S. Department of Education's website currently says federal student loans will begin accruing interest from September 1, with payments due to restart in October 2023.
What is the “On-ramp” Period?
The U.S. Department of Education (DOE) announced temporary help for student loan borrowers, called an “on-ramp” period. This will start on October 1, 2023, and last until September 30, 2024.
During this time, if borrowers miss any payments, they will not be considered delinquent, or failing to meet their legal obligation to repay the loans.
Also, missing payments during the on-ramp period will not result in default or be reported to credit bureaus. This means that it will not show up on your credit report or damage your credit score.
Interest will still accrue on loans during this period, but it will not be capitalized, which means it won't be added to the original loan balance. This prevents the loan from growing due to accumulated interest during this period.
However, this is a temporary protection, and you will need to make regular payments after September 30, 2024.
The Biden administration also announced that it will pursue debt relief for student loan borrowers in another way, but it is expected to take time.
Is it Possible to Lower My Monthly Student Loan Payment?
On June 30, 2023, the Biden Administration also released its new Income-Driven Repayment plan, called the Saving on a Valuable Education (SAVE) plan.
The SAVE plan will:
- Cut undergraduate loan repayments in half each month, from 10% to 5% of discretionary income
- Add protections for people earning under 225% of the federal poverty level—$32,805 in 2023 for a single household—limiting monthly payments
- For people with original loan balances of $12,000 or less, their balance will be forgiven after 10 years of payments, instead of 20 years
- Not charge borrowers with unpaid monthly interest. If someone makes their monthly payment, their loan balance will not grow.
All people with federal student loans will be eligible to enroll in the SAVE plan. They will be able to enroll later this summer, before any monthly payments are due.
Borrowers who sign up or are already signed up for the current Revised Pay as You Earn (REPAYE) plan will be automatically enrolled in SAVE once the new plan is implemented.
Can I Cancel My Student Loans if I Have a Disability?
As of July 1, it is easier for people to cancel (or discharge) their federal student loan debt if they have a disability and cannot work.
The DOE has expanded eligibility, including automatic discharges, for borrowers based on their status with the Social Security Administration (SSA). New discharge rules now apply to:
- SSA beneficiaries with a disability onset date at least five years ago, or have been receiving Social Security Disability Insurance (SSDI) benefits or Supplemental Security Income (SSI) for at least five years;
- SSA beneficiaries with conditions on the SSA's List of Compassionate Allowances;
- SSA beneficiaries currently receiving retirement benefits who met the requirements for a disability discharge before retirement;
- Borrowers who qualify for SSDI or SSI and their next continuing disability review is not for at least three years
People can now ask their nurse practitioners, physician's assistants, and osteopathic doctors to attest that they have a disability, rather than just MDs.
Additionally, under the new rule, people who receive discharge will not have their income monitored. Instead, their loans will only be reinstated if they borrow new federal loans within 3 years of applying for a discharge.
What is the Fresh Start Program?
The Fresh Start program, launched by the DOE in August 2022, helps student loan borrowers who have previously defaulted on their student loans.
The program helps improve borrowers' credit, protects against wage garnishments and collections, and restores their eligibility for federal student aid, federal loans, and provides better repayment options.
The Fresh Start program applies to loans defaulted on before March 2020.
Some loans that people defaulted on during the student loan pause will automatically exit default, without requiring a Fresh Start request. If your loan enters default after September 1, 2023, you cannot use the Fresh Start program.
You must apply before August 31, 2024. The process to sign up for Fresh Start can be done over the phone, online, or by mail:
- Online: go to myeddebt.ed.gov and log in to your account or create an account.
- Phone: Call 1-800-621-3115 (TTY 1-877-825-9923).
- Mail: P.O. Box 5609, Greenville, TX 75403. Include a name, Social Security number, date of birth, and “I would like to use Fresh Start to bring my loans back into good standing.”
Do I Pay Taxes on My Loans That Are Cancelled?
Under the American Rescue Plan Act of 2021, student loan cancellation will not be considered income for federal tax purposes. This means you will not be taxed on your student debt cancellation or forgiveness.
But, borrowers should check if they will need to pay any state taxes on the amount that is cancelled.
What Are My Next Steps?
Because the student loan repayment pause is ending, it is crucial to prepare to start paying student loans. You need to determine who your loan servicers are, the amount of monthly payments you will owe, and your repayment options.
At the end of the pause, you will receive a billing statement or other notice at least 21 days before your payment is due, providing your payment amount and due date. For help preparing for student loan repayments, you can visit StudentAid.gov.
The Student Loan Borrower Assistance website provides student loan borrowers with extensive information and assistance concerning every aspect of their loans.
If you need financial help for living expenses, medical expenses, and student loans, there may be resources available in our Financial Assistance Resources module.
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