Biden’s student debt forgiveness plan isn’t the only change coming for student loan borrowers. His plan also fundamentally changes how loans will be repaid, tur
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I would highly recommend you watch this video to see how the new changes in payment plans will be carried, by far the most crucial part of his plan..
No matter how the justices rule, the three-year pause in payments is due to end.
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What the Supreme Court Case Means for Student-Loan Forgiveness
No matter how the justices rule, the three-year pause in payments is due to end
The Supreme Court took up President Biden’s
student-loan forgiveness plan Tuesday, but those with education loans should be prepared to start making payments
no matter how the court rules.
Under a plan released by the White House last year, millions were promised up to $20,000 in student loan forgiveness. That plan faced several legal challenges, with
justices on Tuesday hearing arguments about whether the White House
had the authority to grant this debt forgiveness to 40 million borrowers. Several justices questioned if the Biden administration had the power to enact such a plan, and Chief Justice John Roberts asked whether loan forgiveness was fair to those who didn’t attend college.
But no matter how the justices rule, the case marks the beginning of the end of a student-loan-payment pause that has been in effect
since the early days of the pandemic. This resumption of payments and interest will hit millions more American wallets like a pay cut when rising prices on everything from
eggs to
rent are already crimping spending.
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Americans who a few months ago expected to be relieved of their debt may soon find they not only owe the money, but their already-tight budgets will be even further strained, economists and financial advisers said. The time to start planning is now, they say.
“Borrowers have almost certainly seen erosion in their purchasing power, and with the resumption of payments, there’s no question those households are in a tougher economic spot,” said Brett House, an economist at Columbia University.
The Education Department estimates 40 million
borrowers would qualify for forgiveness. Individuals making less than $125,000 or members of couples making less than $250,000 were eligible for up to $10,000 in forgiveness. Some borrowers could receive up to $20,000 if they had Pell Grants, a form of federal financial aid for students from low-income households.
Alyssa Talacka, an outpatient oncology nurse and graduate student based in Pittsburgh, at first continued making payments on her student loans during the pause. She hoped doing so would help her finally get ahead of the interest that had been adding to the nearly $40,000 she held in undergraduate loans.
Protesters Call for Supreme Court to Uphold Student-Loan Forgiveness
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Protesters Call for Supreme Court to Uphold Student-Loan ForgivenessPlay video: Protesters Call for Supreme Court to Uphold Student-Loan Forgiveness
Demonstrators gathered outside the U.S. Supreme Court on Tuesday as the court debated President Biden’s plan to forgive student loans held by 40 million Americans. Conservative justices signaled skepticism on the program and questioned its fairness. Photo: Valerie Plesch/Bloomberg News
As of March 2021, she had worked her balance down to $25,000. Then, a series of unforeseen medical bills and out-of-pocket costs for her graduate school program required her to stop making payments.
“Since the pandemic, budget-wise, I was doing OK, and then as soon as gas prices skyrocketed and inflation hit, I really spiraled,” she said. “I used to be able to get two weeks’ worth of groceries for $150, and now I’m paying $100 a week or more.”
When she first learned of the Biden administration’s forgiveness plan, she said she felt “the biggest weight had been lifted.” As a Pell Grant recipient, Ms. Talacka would qualify for up to $20,000 in forgiveness.
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“It’s going to be life-changing, basically,” she said.
Borrowers saved as much as $5 billion a month from the suspension of interest accrual since the student-loan pause first took effect in March 2020, according to estimates from the Education Department. The pause was extended multiple times, first due to the prolonged fallout from the pandemic and then as a result of legal challenges to the forgiveness plan.
“The consequences of the pandemic have a long tail for some borrowers,” said Heather Jarvis, an attorney who trains financial professionals about student loans. “The breathing room that the student-loan-payment pause has provided people has been a critical aspect to their ability to succeed in making ends meet.”
How Repaying Student Loans Is Changing—Dramatically
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Biden’s student debt forgiveness plan isn’t the only change coming for student loan borrowers. His plan also fundamentally changes how loans will be repaid, turning many into, essentially, free college grants. WSJ explains.
Student-loan payments and interest will restart within 60 days of one of the following: when the Education Department is permitted to officially implement the forgiveness plan or upon resolution of the litigation. If there is movement on either by June 30, payments will resume 60 days after that, according to the Education Department.
In some cases, Kristen Euretig, certified financial planner and founder at Brooklyn Plans, said borrowers will make hard choices. For those who cannot find the room in their existing budget for student-loan payments, she said she expects to see some borrowers cutting necessary expenses, trimming back on retirement savings or ceasing payments on other debts.
“It’s been so long now—it’s been three years—and people have really put this payment out of their minds,” she said.
Borrowers who are worried about the payments could benefit from examining their current expenses, stashing money in a savings account in preparation for repayments or researching other options, such as the Biden administration’s
recent revisions to income-driven repayment plans, Ms. Euretig said.
“I think there’s a lot of options and a lot of it comes down to examining and being in the right repayment plan that makes that payment doable and makes them work for you,” she said.
Ms. Talacka said she knows she should analyze her budget to find places to cut just in case forgiveness won’t happen and payments resume sooner than expected, but between her medical issues and her demanding schedule, she hasn’t yet found the time to do so.
“I feel like there’s no convenient time, between the medical bills and paying for grad school out-of-pocket and inflation in general,” she said.
Write to Julia Carpenter at
julia.carpenter@wsj.com
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Corrections & Amplifications
Individuals making less than $125,000 or members of couples making less than $250,000 were eligible for up to $10,000 in forgiveness. An earlier version of this article incorrectly said the thresholds were $125,000 or less and $250,000 or less. (Corrected on Feb. 28)