Biden’s New Student Loan Forgiveness Plan After Original Plan Rejected by the Supreme Court
Biden’s new student loan forgiveness plan has 3 key elements that all borrowers should be aware of in the coming months as payments on federal loans resume.
This new plan was shared to the public on June 30, 2023 after the Supreme Court rejected his original plan to cancel $400 billion in student loans.
A lot of people are unhappy with this decision and a lot of people are celebrating this decision. Regardless of where you stand, there are some facts that all borrowers must understand and what they should expect in the upcoming months as student loan repayments start up again.
In this post I’ll go over what the Supreme Court’s decision really means, Biden’s new student loan forgiveness plan and what borrowers should do going forward.
Supreme Court Denies Student Loan Forgiveness Plan
What was Biden’s Original Plan?
Biden attempted to cancel billions of dollars of student loans under the HEROS Act of 2003. The HEROS Act stands for Higher Education Relief Opportunities for Students and was originally put in place to give the Secretary of Education the ability to “waive or modify” student loan programs to help those who were affected by terrorist attacks on September 11, 2001.
In 2020 President Trump was able to use the HEROS Act to apply the student loan payment pause during the pandemic.
Why the Supreme Court Denied Biden’s Student Loan Forgiveness Plan
In a 6-3 ruling, the Supreme Court said President Biden does not have the authority to cancel student loans under the HEROS Act.
They declared that a decision to cancel $400 billion of student loan debt must come from Congress.
This should not be a surprise to anyone, even the to White House when both President Biden and Nancy Pelosi (D-California) said in the past that he did not have the authority to cancel student loans.
“People think that the President of the United States has the power for debt forgiveness. He does not. He can postpone, he can delay, but he does not have that power. That has to be an act of Congress.”
Nancy Pelosi
Biden’s Reaction to the Supreme Court’s Decision
Biden took this as an opportunity to blame Republicans and the Supreme Court for not being sympathetic to borrowers. He also went on saying “I think the Court misinterpreted the Constitution.”
Perhaps knowing that his plan would not go through, Biden was quick to share his plan B on student loan forgiveness in his reaction to the Supreme Court’s decision.
Experts Explain the Supreme Court Ruling on Student Loan Forgiveness
Biden’s New Student Loan Forgiveness Plan
Plan B Under the Higher Education Act of 1965
President Biden plans to take a new approach to passing his loan forgiveness plan through the Higher Education Act of 1965.
He has the support of the Secretary of Education for this plan but they both said it would take time to implement.
At this time we are unsure of the details of this new plan.
12 Month Repayment On-Ramp
Biden is going to continue to fight for student loan forgiveness but regardless of the outcome student loan repayments will start up again in fall 2023.
In an effort to help those who won’t be financially ready to make payments again they will implement a 12 month on-ramp period.
He encouraged everyone that could make payments should. (whoa…something I agree with him on!)
But for those who financially won’t be ready to make payments, the 12 month on-ramp period will give them time to catch up without marking borrowers as delinquent or reporting missed payments to the credit companies.
I think this can be beneficial to help those who haven’t been making payments the last 3 years and still need time to work debt payments into their budget.
But 12 months can also be a long time too. Don’t wait 12 months if you don’t have to. Make a monthly budget and a debt snowball plan now so you don’t have to stress about it.
SAVE Plan
The 3rd part of his new plan is the Saving on Valuable Education (SAVE) Plan. This is a revision to the current Revised Pay As You Earn (REPAYE) Plan.
The new SAVE Plan will lower monthly payments for borrowers, possibly making some minimum payments $0. Borrowers that are currently enrolled in the REPAYE Plan will automatically be put in the SAVE Plan. The White House report also stated that all borrowers are eligible to apply for the SAVE Plan.
The SAVE Plan is based on income, just like other Income Driven Plan. For more details about the SAVE Plan go to studentaid.gov.
Next Steps for Borrowers
Know the Important Dates of Student Loan Payments
There are a lot of things changing with student loan payments now so it is necessary to stay on top of important dates. Mark down these dates:
September 1, 2023 – Student Loan Interest Will Resume
Interest rates have been 0% since the payment pause was put into effect. Interest will be applied to your loans starting in September.
October 1 – Loan Repayments Will Begin
Repayment on federal loans will begin for all borrowers. Borrowers should keep a close eye on their accounts so they know what date their payment is.
Make Sure Your Information is Accurate
Before repayments kick in you want to make sure all your information is accurate with your student loan servicer. This includes your personal contact information, loan balances, interest rates and minimum balances.
You will also want to double check that you’re set up for automatic withdrawals if that is what you want. With the 3 year payment pause, the loan service system might not have automatic withdrawals set up even if you had it in the past.
These are the first steps borrowers should do NOW, before payments start up. To help keep this information organized, download my Student Loan Recap worksheet. (Enter your information below)
Conclusion
I understand the topic of student loan forgiveness is very frustrating for borrowers. I once had student loans myself but and I though it would take forever to get them paid off. But then I learned a strategy that helped me pay them off early!
Don’t rely on others (i.e. the government) to get you out of debt. That is your job!
Yes, take advantage of the services they provide to help you with your payments BUT also make a plan to pay them off as quickly as you can.
Related Articles
Cancel Student Loans: Why This Shouldn’t Be Your Plan
How to Use the Debt Snowball to Pay Off Debt Faster
Understanding Student Loan Interest: How to Get Ahead of the Game
What Do You Think of Biden’s New Student Loan Forgiveness Plan? Comment Below
Resources: https://www.whitehouse.gov/briefing-room/statements-releases/2023/06/30/fact-sheet-president-biden-announces-new-actions-to-provide-debt-relief-and-support-for-student-loan-borrowers/ https://www.foxbusiness.com/personal-finance/supreme-court-decision-against-biden-student-loan-forgiveness-next-steps