The Supreme Court’s Student Loan Decision: What Comes Next?

By now, we’re all aware of the Supreme Court’s 6-3 decision that struck down President Biden’s student loan forgiveness plan last June. The plan was intended to provide relief for nearly 40 million borrowers in the U.S., to the tune of up to $20,000 per person. Along with this development, borrowers will be back on the hook for payments starting this October when the payment pause is permanently lifted.

As of the present, 43.6 million Americans have federal student loan debt, with the average balance being around $38,000. The average balance among both federal and private borrowers is as high as $40,000, and around six percent of borrowers owe more than $100,000 in student loan debt. There is much debate regarding the potential effects of forgiving student loan debt, with some experts claiming that the increased cash flow from borrowers who’ve gotten relief might stimulate the economy, or that forgiving student debt could contribute to increased inflation.

Whichever way you want to look at it, the fact remains that student loan debt is absolutely crippling for young people who are just starting out. In the most basic terms, monthly payments for most student loans equate to an additional car payment, or perhaps even a rent payment in certain areas. Borrowers who are making payments often find it very difficult, or even impossible to save money, are unable to achieve financial independence, and are sometimes forced to hold off on moving forward with certain aspects of their lives.

The Supreme Court’s decision has left borrowers feeling dejected, with many having become accustomed to the extra funds in their wallet during the ongoing payment pause. Many borrowers might have made financial plans in hopes that President Biden’s student loan forgiveness plan would come to fruition, which could have provided some much-needed financial relief. So, what comes next?

President Biden recently responded to the Supreme Court’s decision, stating that his administration would pursue other avenues toward providing student loan borrowers with relief. Part of this new plan includes a program developed by the Department of Education that would reduce payments on undergraduate loans from 10% to 5% of a borrower’s discretionary income. According to the Biden administration, this would save borrowers up to $1,000 per year. Additionally, student loans with a balance of $12,000 or less may be forgiven after 10 years of payments. Previously, this form of relief would only be available to borrowers who have made regular payments for 20 years.

The Biden Administration also announced that it’s working with Secretary of Education Dr. Miguel Cardona on a program that would allow the Department of Education to waive student loan debt in certain scenarios, but noted that while this particular pathway is legally sound, it would take longer than the proposed student loan forgiveness plan that was recently struck down by the Supreme Court.

Addressing the impending lift of the payment pause, President Biden explained that borrowers will be able to take advantage of an “on-ramp” repayment program. This temporary program will last for 12 months, and will allow borrowers who can’t make payments to sidestep any negative effects such as defaulting on their loans. The way this is proposed to work is the Department of Education won’t refer borrowers who missed their monthly payments to credit agencies for a period of 12 months. This particular aspect of the Biden Administration’s new plan should provide some relief to those who are forced to start making payments again this October.

Let’s go over some useful tactics that you can employ in order to help keep your head above water. If you were making payments before the payment pause went into effect, take the amount you were paying per month and put it into a savings account until the payment pause ends in September. You won’t have to start making payments again until the following October, so you might be able to get a nice savings account going. Of course, the purpose of this savings account is to have funds set aside in case of a financial emergency or if you fall behind due to the burden of making student loan payments again.

In many cases, student loan payments are too high for borrowers to make each month. When payments are consistently missed, borrowers run the risk of delinquency or default—both of which will damage your credit. In the worst cases, this could have a negative impact on those who are first-time home buyers or who are looking to get into a new car. If you’re unable to afford the monthly payments you could apply for deferment or forbearance, but there’s some things you should know before considering either of these options.

Whether you’re going either the deferment of forbearance route, you’ll continue to accrue interest despite not making any payments. This could make things more difficult in the long run, so you should attempt to pay the interest on your student loan during a deferment or forbearance period. Another thing to consider is whether opting to go into deferment or forbearance will affect your eligibility for future student loan forgiveness options. The bottom line is, deferment or forbearance should be viewed as your very last options.

President Biden has stated that “hope is on the horizon,” reminding millions of borrowers of the previous student loan relief programs that were spearheaded by his administration. When it comes to the forgiveness of student loan debt, we seem to be playing a waiting game; however, things have changed more in recent years, leading many to believe that in the near future, student loan debt will be far more manageable.