After the Supreme Court blocked President Biden’s student debt relief proposal, people with loan balances need to watch out for two things in the near term.
First, the pandemic-related hiatus in monthly payments will end on September 1, with the first payment due sometime in October. But the Biden administration has said it will provide a year-long “on-ramp” to ease the transition for borrowers who may be struggling to make their payments — if a borrower misses a monthly bill, it’s effective from October 1 no more than delinquent until September 30, 2024.
Then there’s even greater relief: The Department of Education has finalized its plan for a new loan-repayment schedule that could cut many borrowers’ monthly bills in half — and enrollment will open later this summer before payments are due.
On Friday afternoon, the White House announced a separate attempt to allow for a loan foreclosure using the so-called “settlement and compromise power” under the Higher Education Act. These efforts will take months at least, and their success may be subject to legal or other challenges. The scope and number of people who could benefit are not yet clear.
The Biden administration’s repayment plan – called SAVE – would overhaul the existing income-based plan called REPAYE. The Department of Education released its first proposal in January, and the final rule appears to be very close to the original plan: Payments for undergraduate borrowers, for example, will be 5 percent of their discretionary income, up from 10 percent in the existing REPAYE plan and 15 percent in other plans. (See our guide to the original proposal here).
Taken together, these two measures should go a long way in helping distressed borrowers move back into the repayment phase.