According to documents obtained through a federal records request, the Department of Education has issued guidance to student loan companies regarding the collection of federal student loan payments after a three-year pause. The documents, filed in November, indicate that the Education Department anticipates the resumption of monthly payments in October, with interest accruing starting in September.
The documents state that servicers are instructed to extend the temporary 0% interest rate, initially implemented with CR 5475, until August 31, 2023. They also emphasize that all other requirements of CR 5475 remain in effect. Additionally, student loan servicers are mandated to notify borrowers about the resumption of payments after August 31.
Furthermore, the documents outline that servicers will continue to provide refunds for payments received on or after March 13, 2020, upon the borrower’s request or as directed by the Federal Student Aid department (FSA).
Under the CARES Act, enacted in response to the COVID-19 pandemic, federal student loan payments have been paused, and interest rates reduced to 0%. The payment pause was initially approved during the administration of former President Donald Trump and has been extended multiple times by President Joe Biden.
However, the White House announced in November that federal student loan payments would resume 60 days after the Education Department is allowed to initiate its student loan forgiveness plan or after the resolution of Supreme Court litigation, whichever comes first.
It is important to note that private student loan borrowers are not eligible for federal student loan relief. However, refinancing private student loans at a lower interest rate can help lower monthly payments. Borrowers can explore options from multiple lenders without impacting their credit score by visiting platforms like Credible.
Student Loan Forgiveness Plan Faces Supreme Court Scrutiny
The student loan forgiveness plan put forth by President Biden is currently under review by the Supreme Court. In February, the Court heard arguments in two lawsuits challenging the plan. The proposal aims to alleviate federal student loan debt by potentially canceling up to $10,000 for eligible individuals and up to $20,000 for those who received Pell Grants. According to the Federal Reserve Bank of New York, this plan could eliminate a total of $441 billion in student loan debt for over 40 million borrowers.
As of now, federal student loan debt amounts to $1.635 trillion, carried by more than 43.8 million borrowers, as reported by EducationData.org. If the Supreme Court approves the relief plan, eligible individuals must have individual incomes below $125,000 or $250,000 for married couples.
Since its announcement in August of last year, the president’s forgiveness program has faced legal challenges. One lawsuit involves several states, namely Nebraska, Missouri, Arkansas, Iowa, Kansas, and South Carolina, who argue that the proposal would unlawfully harm their tax revenues. These states also contend that the president is unjustly utilizing the Higher Education Relief Opportunities for Students (HEROES) Act of 2003 to initiate widespread debt cancellation.
President Biden, who has announced his candidacy for re-election, maintains that the Department’s proposal aligns with the law. However, another case challenges the legality of the process involved in creating the relief plan.
The Supreme Court is expected to issue rulings on these lawsuits in late June or early July.