The Biden Administration’s proposal to pay up to $20,000 in loan relief to student borrowers has been delayed after a federal judge in Texas labeled the scheme “illegal,” causing uncertainties and financial insecurity for about 40 million Americans who are eligible for debt forgiveness.
Since the program’s application went live in October, 26 million individuals have already applied. But following Thursday’s ruling, the Biden administration ceased accepting applications for its student debt forgiveness program.
The administration intends to file an appeal, but the verdict raises doubts about what may occur as legal battles play out and as borrowers face a financial deadline with the student debt repayment moratorium set to expire in December and installments to resume in January. If the appeal is not decided by then, millions of people may be responsible for repayments they did not foresee.
Kristen Carlisle, general manager of Betterment at Work, remarked, “Student debt is one of the greatest financial strains affecting Americans today, and it’s been a very difficult time for borrowers.”
Here is what experts predict will happen next with Biden’s debt relief scheme, as well as what borrowers may do.
What is the next step in the legal procedure?
The Biden administration has stated that it intends to appeal the verdict, although the legal procedure could take several weeks. The Fifth Circuit Court of Appeals will hear the case, and according to a research note published by Height Securities on Friday, the court has “arguably become one of the most conservative appeals courts in the country.”
After the decision of the court of appeals, either side is likely to appeal to the Supreme Court, where conservative Justice Samuel A. Alito would first hear the issue, according to Height Securities.
Mark Kantrowitz, an expert in higher education, remarked that the ordinary appeals procedure takes six months, but the courts expedited this case due to its importance. There is a possibility that the lawsuit could be resolved before January, when the debt payback is slated to resume, but this is not a certainty.
Kantrowitz added that it is uncertain whether the case would be resolved in favor of the Biden administration, which faces more legal challenges to the loan forgiveness scheme.
Should I anticipate making loan repayments in January?
Yes. Due to the unpredictability of the timing of the appeals process, it would be smart for debtors to begin making full repayments in January. Kantrowitz stated that borrowers should be prepared to repay their obligations without the debt forgiveness promised by the Biden administration.
There is still a possibility that the proposal may move through, but borrowers may not want to risk a financial crunch if the appeal drags on or is not resolved in the Biden administration’s favor.
Kantrowitz stated, “In the worst-case scenario, they will have to begin making payments.” I would urge they plan for it nonetheless.
I have not yet applied for loan forgiveness. What should I do?
Currently, there is little you can do if you have not applied to the program. Citing the judge’s judgment, the Biden administration has ceased accepting applications for its student loan forgiveness program.
Approximately 26 million people have applied for the program to yet, but 38 million to 40 million individuals may be eligible, according to various estimates. This means that 12 to 14 million individuals have yet to apply for aid.
Kantrowitz stated that these borrowers may be most at risk of facing default in January. The Department of Education and loan services require around 4 to 6 weeks to process the applications. Therefore, even if the court rules in favor of the Biden administration by the end of November, it is probable that these borrowers’ applications may not be processed until January.
“They would likely have one month to make payments before the loan would be erased,” Kantrowitz stated.
Could the debt repayment suspension be prolonged?
Kantrowitz stated that this is one option for the Biden administration should the legal process drag on or the courts rule against the loan forgiveness program.
Kantrowitz stated that President Biden might extend the debt-repayment pause through the balance of his tenure. “There is little that can be done to remedy the situation. After all, it has already been extended seven times based on the HEROES Act, and nobody has filed a lawsuit saying he lacks jurisdiction.”
Nevertheless, the Biden administration declared the August renewal of the student loan moratorium to be the “last student loan moratorium extension.” If the administration decides to extend it for a third time, historical events indicate that the endeavor may be close to failure. For example, the August extension was announced around one week before to the pause’s expiration on August 31.
What preparations should I make for repayment?
There have been changes during the epidemic, such as Navient’s departure from the student loan program, which necessitate a review of your existing servicer.
Consider how much you will owe in January if you do not participate in the Biden program. With this knowledge, you can begin carving out extra funds in your budget, according to Kantrowitz.
Finally, Kantrowitz suggests establishing an automatic payment mechanism to avoid the possibility of late payments.
“For starters, you are less likely to be late and to face the possibility of uncertainty on the restart of payments,” he stated. As repayment commences, “the call centers are likely to receive a substantial number of calls.”