In July, the Supreme Court struck down the Biden administration’s proposal that suspended federal student loan payments, stopped interest accumulation, and pledged forgiveness for hundreds of billions of dollars in student loans as COVID-19 pandemic relief.
Democratic House Speaker Nancy Pelosi said that the President simply lacked the correct power, stating: “Not everybody realizes that, but the president can only postpone, delay but not forgive student loans. It would take an act of Congress, not an executive order, to cancel student loan debt.”
Now that the political call has been made, millions of Americans—who were trusting in this solution—are understandably surprised (and upset) that their loans won’t be forgiven and payments are set to resume.
Many are left wondering what this means going forward.
Here’s what you need to know.
What Was Ruled in Biden v. Nebraska?
In a 6-3 decision, the Supreme Court determined in Biden v. Nebraska that the Biden administration exceeded its constitutional boundaries by invoking the 9/11 HEROES Act. Originally, this act was designed to shield soldiers from defaulting on student loans when called into active duty for the Iraq war.
Although both the Trump and Biden administrations utilized this policy to repeatedly halt student payments and interest accumulation, the move to cancel student debt was deemed an overreach by the Court for two primary reasons:
- It was viewed as an attempt to bypass Congressional approval, which holds the power of the purse and had never authorized such actions.
- Just weeks after announcing his student loan forgiveness proposal, Biden stated in a 60 Minutes interview that the COVID emergency was effectively over. This undercut their legal argument; with no ongoing national emergency, the HEROES Act couldn’t be applied.
As a result, the plan to forgive up to $20,000 in federal student loans for eligible borrowers is now halted, and payments on student loans will resume for the first time in three years.
When Does Interest Resume?
During the federal student loan hiatus, interest rates were temporarily lowered to 0%. However, on September 1st, 2023, the pause was lifted and they began accruing interest. The exact amount of interest will depend on the specific loan agreement. As CNN notes: “Now, interest rates, which are fixed and vary by loan, will return to the same rate they were before the freeze. But borrowers still won’t need to take any action until their first monthly payment is due.”
When Do Payments Resume?
The vast majority of borrowers will have their first payment come due in October, though the due date will depend on the loan terms. If you graduated in the Spring, you’ll likely have a 6 to 9 month grace period before you’re expected to begin paying down the loan.
Additionally, you can expect to receive a bill that lists the payment and interest amount as well as the due date.
Will There Be Retroactive Interest or Principal?
No, there won’t be retroactive interest or payments.
Borrowers who were in default prior to the payment pause may have their accounts retroactively placed in forbearance, meaning they won’t be considered delinquent or charged late fees.
What If I Can’t Make Payments?
The Biden admin has allowed a 12-month “on-ramp” designed to temporarily protect borrowers from default or credit damage. The on-ramp runs from Oct. 1, 2023, to Sept. 30, 2024, and is automatically applied to borrowers, meaning if you don’t pay, it will take effect.
Naturally, there are both pros and cons of the on-ramp for borrowers:
- Advantages
- Loans won’t default or become delinquent
- Non-payments won’t be reported to credit bureaus or debt collection agencies
- Credit scores remain unaffected by missed payments
- Unpaid interest doesn’t capitalize after the on-ramp period
- Drawbacks
- Interest on the loan will accumulate
- Any missed payments during this period will be due after the on-ramp ends
- No contributions are made towards loan forgiveness under income-driven repayment (IDR) plans or Public Service Loan Forgiveness during this time
North Jersey Federal Credit Union: Your Partner in Student Loan Planning
Amid the shifting sands of federal student loan policies, North Jersey Federal Credit Union stands ready to assist students in navigating their financial futures.
As the best credit union in NJ, we can offer expert guidance on loan payment strategies, helping you prioritize and manage your debts effectively. With a suite of tools and resources, we’re committed to ensuring our members make informed, beneficial decisions.
When uncertainty looms, trust NJFCU to light the way.
