Jill On Money: Student loan cancellation canceled

The Supreme Court has recently ruled that the Biden administration’s plan to cancel $430 billion dollars of federal student loans for those who earn less than $125,000, is not going to happen.

For the 26 million Americans who had already applied with the Department of Education for the one-time loan cancellation of $10,000 – $20,000, as well as for all of the 45 million federal borrowers, the repayment clock will start ticking again, after three years of relief.

Here are the most common questions that I have fielded about student loans:

When do my payments restart?

October 1 is D-Day for student loan borrowers. If you have not heard from your loan servicer, get in touch with them to confirm your personal information, loan amounts, interest rates and payment plans. Confirm that you have auto-debit enrollment — doing so will keep you on track for the resumption of payments and help avoid missed payments and penalties.

What if my financial situation has changed?

You are not alone. According to the Consumer Financial Protection Bureau (CFPB), many student loan borrowers (especially younger ones) are now struggling with payments on their other debts, which are piling up alongside their student loans.

If your life has changed, whether due to more debt or a drop in earnings, check out the DOE Loan Simulator to determine if a different repayment plan better meets your needs or if consolidation might help.

What is the Biden “temporary on-ramp”?

The day of the decision, President Joe Biden unveiled what he called an on-ramp for repayment that acknowledges that although most student loan borrowers have outstanding debt that is less than $25,000 on their own educational loans, there could be a readjustment period.

While borrowers are expected to pay, struggling borrowers who miss payments will receive a 12-month reprieve. The DOE will not report anything to credit agencies, preventing a hit to delinquent borrowers’ credit scores, nor will they consider these loans delinquent, put them into default, or refer them to debt collection agencies.

Should I consider an Income-Driven Repayment (IDR) plan?
These plans are geared towards borrowers who are unable to afford their previously scheduled repayment plans and is based on what you earn (currently 10% of your discretionary income.)

Earlier this year, the Biden administration proposed changes to IDRs, which would cap payments at 5% of income. That change would raise the amount of income that is protected from repayment, and would forgive loan balances after 10 years of payments, instead of 20, for borrowers with original loan balances of $12,000 or less.

In remarks delivered at the end of the day that the Supreme Court’s decision was released, Biden reiterated that these changes to the IDR plan would indeed go into effect.

What About Public Service Loan Forgiveness (PSLF)?

PSLF was not part of the decision, which means that those who work FULL TIME for government, the military or non-profit organizations may qualify for student loan forgiveness or cancellation. The Administration had previously eased some of the rules for PSLF, so if you did not previously qualify for the program, you should check in again to see if you can do so now.

With three months before loans restart, should borrowers start paying now?
If you have other, high interest debt, concentrate on that first. Additionally, if your job includes a retirement plan with a match, do that before paying extra on your student loans.

And if you have run down your pandemic savings, replenish your emergency reserve fund so you have six to 12 months of expenses.

If you have checked all of those boxes, repaying student loans now, while there’s still no interest, will shorten the amount of time on your loan.

Jill Schlesinger, CFP, is a CBS News business analyst. A former options trader and CIO of an investment advisory firm, she welcomes comments and questions at askjill@jillonmoney.com. Check her website at www.jillonmoney.com.