Last week the U.S. Supreme Court officially rejected the Biden administration’s bill that would eliminate billions of dollars in student debt for over 40 million people across the country. Now regular payments will, most likely, resume starting in October. The decision wiped out borrowers getting as much as $20,000 of their existing debt forgiven. However, in an effort to bring some relief to borrowers the White House plans to use the Higher Education Act of 1965 to aid this endeavor. “That will allow Secretary Cardona, who is with me today, to compromise, waive, or release loans under certain circumstances,” Biden said last Friday. “This new path is legally sound. It’s going to take longer, but, in my view, it’s the best path that remains to providing for as many borrowers as possible with debt relief.”
However, this is no band-aid fix for borrowers. The Act has to go through a negotiated rulemaking process which means an extended timeline. This means parents of student loan borrowers are in for even more stress. Student loans are a family issue. Credello recently conducted a survey of 600 parents, who helped pay their children’s college education costs, both partially and in full, either directly or through student loans, and found that parents do feel the financial strain of sending their kids to college. Nearly 30% of the parents surveyed have spent between $10,000-$25,000 on their children’s tuition payments and nearly 1 in 4 parents (23% of respondents) have spent between $25,000-$50,000 on their children’s tuition costs. Over 40% of parents surveyed revealed that paying their children’s student loans or funding their tuition made saving difficult, 51% said it decreased their disposable income, and 38% said it increased their stress levels.
Why will this plan take longer?
A negotiated rulemaking process requires many public hearings and feedback so this is expected to take longer. Bharat Ramamurti, deputy director of the National Economic Council, said on Friday the public hearings require a certain amount of prep time and then the processing of comments from the public also has to be considered when changing the proposal. “It’s going to be months,” he added. “I think, as I said, even the typical rulemaking process typically takes months. But we are aiming to do it as quickly as possible. And so, we will give you more updates as we hit each milestone in that process.”
The first public hearing on the Higher Education Act will be held in July but there is no determined date for when borrowers will receive an update. So, in other words, borrowers (and parents of borrowers) should assume their payments will resume in October. Interest will start accruing on September 1st though Rep. Alexandria Ocasio-Cortez has urged Biden to pause interest once payments resume. It is crucial to mark this date on your calendar and prepare yourself financially to resume making regular payments.
Review Your Repayment Plan
Take the time to review your current repayment plan. Evaluate whether it still aligns with your financial goals and circumstances. If necessary, consider changing your plan to a more suitable option. Federal student loan borrowers have various repayment plans available, including income-driven repayment plans that can help make payments more manageable.
Assess Your Financial Situation
With student loan payments resuming, it is an excellent opportunity to evaluate your overall financial situation. Take a close look at your income, expenses, and savings. This assessment will help you create a realistic budget that incorporates student loan payments. Prioritize your expenses and consider making adjustments to ensure you can comfortably manage your student loan obligations.
Build an Emergency Fund
An emergency fund is an essential financial safety net. It can provide peace of mind and protect you from unexpected expenses or financial challenges. As you prepare to resume student loan payments, make it a priority to build or replenish your emergency fund. Aim to save three to six months’ worth of living expenses so you have a buffer in case of unexpected events.
Familiarize Yourself with Loan Servicers
If you have federal student loans, familiarize yourself with your loan servicer. Your loan servicer is the company responsible for managing your student loan account and collecting payments. Keep their contact information readily available and stay informed about any updates or changes related to your loan.
As the temporary relief from student loan payments comes to an end, it’s crucial to be prepared for the resumption of payments. Being proactive and informed allows you to navigate the transition smoothly and continue toward financial stability. Remember, resources and assistance are available if you encounter difficulties in managing your student loan payments.