It was a first-of-its-kind effort to reduce borrowers’ $1.6 trillion in debt when the Biden administration announced its student loan forgiveness plan in August. However, the plan is currently facing multiple legal challenges, leaving borrowers uncertain about the future.
In the past two months, student loan forgiveness has been the subject of two high-profile lawsuits. Due to these lawsuits, the Department of Education is no longer accepting loan forgiveness applications, and the program has been suspended pending a court decision. In the interim, the Biden administration extended the moratorium on student loan payments once more.
An alternative legal strategy could be employed to demonstrate the President’s authority to forgive student debt. The failed plan relied on the HEROES Act, which was passed in the wake of the 9/11 terrorist attacks and allows the education secretary to “alleviate the hardship that federal student loan recipients may experience as a result of national emergencies.” And because the COVID-19 pandemic was a national emergency at the time that Biden’s plan was implemented, the administration argued that the action was legal.
Biden Administration’s Plan
In August 2022, when the Biden administration unveiled its student debt relief plan, the $10,000 per borrower in student loan forgiveness attracted the most attention, and with good reason. This was not, however, the only aspect of the plan.
In addition, Biden’s plan proposed a new income-driven repayment plan that would limit undergraduate loan repayments to 5% of discretionary income (currently 10%). In addition, it prevents unpaid interest from causing the loan balance to increase if the required payment is not made.
As the status of student loan forgiveness remains uncertain, the Biden administration has extended the suspension of student loan payments pending a decision by the Supreme Court.
If the forgiveness is implemented or the litigation is resolved, the borrower will have sixty days before payments are required to resume. If not, the suspension will last until June 30, 2023, after which the borrower will have 60 days to resume payments.
Originally, the payment hold was set to expire on December 31, 2022, which the U.S. Department of Education termed a “final extension.”
If you have private student loans that are not eligible for cancellation, you may wish to refinance them to obtain a lower interest rate. However, refinancing your federal student loans with a private lender may not be the best decision, as you will lose access to federal protections such as loan forgiveness and the student loan payment suspension.
Source: CNBC,The Motley Fool
