How the Supreme Court Student Loan Decision Affects You

Updated 3:25 p.m. Friday

The Supreme Court has ruled the Biden administration overstepped its authority in trying to cancel or reduce student loan debt, effectively killing the $400 billion plan, which would have canceled up to $20,000 in federal student loans for 43 million people. Of those, 20 million would have had their remaining student debt erased completely.

• Jump to: What to know about student loan repayments after the Supreme Court’s decision

The Court’s decision means, barring an act of Congress, those Americans are on the hook for payments starting in October.

Biden’s response: ‘This fight isn’t over’

In response to the Supreme Court’s decision, Biden vowed to push ahead with a new plan to provide student loan relief for millions of borrowers while blaming Republican “hypocrisy” for triggering the decision that wiped out his original plan.

Biden said payment requirements for student loans would resume in coming weeks, but that he would work under the authority of the Higher Education Act to begin a new program designed to ease borrowers’ threat of default if they fall behind over the next year.

This approach, as outlined by the White House:

• Secretary of Education Miguel Cardona on Friday had “initiated a rulemaking process aimed at opening an alternative path to debt relief for as many working and middle-class borrowers as possible,” under the Higher Education Act.
• The Department of Education  would finalize “the most affordable repayment plan ever created, ensuring that borrowers will be able to take advantage of this plan this summer — before loan payments are due.” Many borrowers, said Biden, would not have to make monthly payments under this plan, and those that did would save more than $1,000 a year.
• The Department of Education would also set up a 12-month “on-ramp” to repayment, running from October 1, 2023 to September 30, 2024, “so that financially vulnerable borrowers who miss monthly payments during this period are not considered delinquent, reported to credit bureaus, placed in default, or referred to debt collection agencies.”

‘Hung out to dry’

California Attorney General Rob Bonta — who in January filed an amicus brief in the Supreme Court in support of President Joe Biden’s plan, along with 21 other attorneys general — called the decision “profoundly disappointing” on Friday morning.

More that 3.5 million Californians, said Bonta, were set to benefit from the “historic” student loan debt forgiveness plan — “and now, they’ve been hung out to dry.”

“Today, the Republican supermajority on the Supreme Court cruelly denied more than 40 million Americans deeply needed student debt relief,” said Speaker Emerita Nancy Pelosi in a statement, characterizing the Court’s decision as allowing “a crisis of debt to continue holding back families from buying homes, starting businesses and making ends meet.”

• Jump to: When do you have to start repaying your student loans?

Calling the Supreme Court a “corrupt, right-wing court,” Congresswoman Barbara Lee (D-Calif.) said that having put her two sons through college as a single mother, she knew “firsthand how the burden of student loan debt can impact a person’s life.”

America, wrote Lee, “cannot accept a return to the failed status quo, especially one that continues to disproportionately impact Black and brown communities,” and she urged Biden to “use the tools at his disposal to cancel student debt regardless of SCOTUS’ decision to ignore the letter of the law in this backwards decision.”

Officials at California’s higher education institutions also voiced their dismay at the Supreme Court ruling on Friday morning. The University of California also released a statement expressing its disappointment with the ruling, saying that it “would have made a significant impact on the lives of college graduates, particularly for those from low-income backgrounds who are more likely to take on debt to complete their education.”

UC said it would be arranging webinars with the Department of Education for alumni and students “later this year,” to provide information about their different options for debt repayments.

In a statement, California State University Interim Chancellor Jolene Koester said that that CSU officials sympathized with college graduates nationwide “who are pained by the decision reached by the Supreme Court today,” and that the university would “continue to advocate for effective federal measures such as doubling the Pell Grant, which would mean fewer students taking on debt and graduates entering the workforce on solid financial footing.”

Borrowers who are worried about their budgets do have some options. For instance, the government has other loan forgiveness programs that are still in effect, even if Biden’s plan was struck down.

Here’s what to know about how the decision will affect you:

When will student loan payments resume?

Student loan payments that have been frozen for the last three years because of the pandemic are set to restart in October. That was going to happen no matter what the Supreme Court decided. Interest will start accruing Sept. 1.

How should I prepare?

Betsy Mayotte, president of the Institute of Student Loan Advisors, encourages people not to make any payments until the pause has ended. Instead, she says, put what you would have paid into a savings account.

“Then you’ve maintained the habit of making the payment, but (you’re) earning a little bit of interest as well,” she said.

Mayotte recommends borrowers use the loan-simulator tool at StudentAid.gov or the one on TISLA’s website to find a payment plan that best fits their needs. The calculators tell you what your monthly payment would be under each available plan, as well as your long-term costs.

Katherine Welbeck of the Student Borrower Protection Center recommends logging on to your account and making sure you know the name of your servicer, your due date and whether you’re enrolled in the best income-driven repayment plan.

What if I can’t or don’t want to pay?

If your budget doesn’t allow you to resume payments, it’s important to know how to navigate the possibility of default and delinquency on a student loan. Both can hurt your credit rating, which would make you ineligible for additional aid.

If you’re in a short-term financial bind you may qualify for deferment or forbearance — allowing you to temporarily suspend payment.

To determine whether deferment or forbearance are good options for you, you can contact your loan servicer. One thing to note: interest still accrues during deferment or forbearance. Both can also impact potential loan forgiveness options. Depending on the conditions of your deferment or forbearance, it may make sense to continue paying the interest during the payment suspension.

Are there any other programs that can help with student loan debt?

If you’ve worked for a government agency or a nonprofit, the Public Service Loan Forgiveness program offers cancellation after 10 years of regular payments, and some income-driven repayment plans cancel the remainder of a borrower’s debt after 20 to 25 years.

Borrowers should make sure they’re signed up for the best possible income-driven repayment plan to qualify for these programs.

Borrowers who have been defrauded by for-profit colleges may also apply for borrower defense and receive relief.

These programs won’t be affected by the Supreme Court ruling.

What’s an income-driven repayment plan?

An income-driven repayment plan sets your monthly student loan payment at an amount that is intended to be affordable based on your income and family size. It takes into account different expenses in your budget, and most federal student loans are eligible for at least one of these types of plans.

Generally, your payment amount under an income-driven repayment plan is a percentage of your discretionary income. If your income is low enough, your payment could be as low as $0 per month.

If you’d like to repay your federal student loans under an income-driven plan, the first step is to fill out an application through the Federal Student Aid website.

How can I reduce costs when paying off my student loans?

• If you sign up for automatic payments, the servicer takes a quarter of a percent off your interest rate, Mayotte says.
• Income-driven repayment plans aren’t right for everyone. That said, if you know you will eventually qualify for forgiveness under the Public Service Loan Forgiveness program, it makes sense to make the lowest monthly payments possible, as the remainder of your debt will be cancelled once that decade of payments is complete.
• Reevaluate your monthly student loan repayment during tax season, when you already have all your financial information in front of you. “Can you afford to increase it? Or do you need to decrease it?” Mayotte said.
• Break up payments into whatever ways work best for you. You could consider two installments per month, instead of one large monthly sum.

This story contains reporting from The Associated Press’ Adriana Morga and Cora Lewis, and KQED’s Carly Severn.

The Associated Press receives support from Charles Schwab Foundation for educational and explanatory reporting to improve financial literacy. The independent foundation is separate from Charles Schwab and Co. Inc. The AP is solely responsible for its journalism.