Episode Transcript
Just before Turkey Day, the Biden administration releases what will likely be the final extension of the student loan payment. Freeze. Tune into this episode to hear details on this new development.
Hello, this is Brenton Harrison, founder of Escape Student Loan Debt, and your host for the Escape Student Loan Debt podcast. It is literally Thanksgiving day when I'm recording this, and even though we're in the middle of another series on student loan developments, I wanted to give you an off the cuff episode to tell you about some of the recent developments as it pertains to the student loan payment freeze.
This week, the Department of Education announced that they were going to push out the resumption of student loan payments and interest, and there's been already a lot of confusion about whether it is actually six months or eight months or three months. So I wanted to make sure we gave you an episode to explain what is going on.
This week's announcement has everything to do with the lack of clarity surrounding the Biden [00:01:00] Administration's student loan forgiveness program. If you recall, earlier this year, the Biden administration said that they would forgive student loans of up to $20,000 for certain eligible borrowers.
And almost immediately, a number of Republican-LED states swore that they would challenge this forgiveness program in court. And they have followed through on that promise in a number of different states. They have found litigants who are upset that they don't qualify for the program. They found people who are upset that they might have to pay income taxes as a result of those forgiven student loans.
Whatever the reason, they have been taking the Department of Education to the courts to try to stop them forgiving either 10,000 or $20,000 of federal student debt for eligible borrowers.
Now there have been two recent court developments that have put the status of this program in some murky waters.
First, a federal judge determined that the program itself was unconstitutional and that the Biden [00:02:00] administration didn't have the authority to forgive these debts without congressional approval. It then went to an appeals court, and the appeals court decided that they were going to put an injunction on the program, essentially pausing the Department of Education's efforts to release that debt until they appealed to the Supreme Court, and that's where we stand now. After the first judge made their ruling, the Department of Education was still soliciting applications for borrowers who were seeking forgiveness.
And after the appeals court put an injunction on this program nationwide, the Department of Education decided that they were going to stop taking new applications, but they would continue processing those they had already received. And as a result, out of the over 26 million people that applied, over 16 million people were approved under the program regulations.
And many of them have already gotten emails that said, "Hey, you applied for forgiveness.. We've determined you're eligible for forgiveness based on the rules we gave you, but because of this court case, we cannot yet [00:03:00] grant it to you." Now, that puts the department in a real pickle because student loan payments were supposed to start again in January of 2023, but because of this court case, if they started payments in January, there would potentially be millions of borrowers paying towards debts that would've been forgiven if the court simply would've allowed the Department of Education to do so.
As a result, the department felt it might be unfair to ask these people to make those payments, and they decided to push back the payment and interest freeze an additional period of time. Now, what are the details of that forgiveness? You've seen a lot of people say 60 days. June 30th, August 30th. Here's how it reads.
The Department of Education will freeze payments and interest on eligible loans until the earlier of 60 days after the court case has been decided, or June [00:04:00] 30th, 2023. You see, the next step in this court case is the Department of Education is going to appeal to the Supreme Court, but they do not yet know when they will get their day in court in front of the justices. So because of that lack of clarity around when the program will be approved or denied, they're essentially saying, we're gonna set a line in the sand. If, say, on January 31st, they get some clarity from the court, then 60 days after January 31st, they would start payments.
But assuming that clarity doesn't come until after June 30th, 2023, they are saying June 30th is the line in the sand, where at that point, they won't start payments, but if they have not received clarity by that point in time, they will start payments and interest 60 days after June 30th. Which really means that the pause is extended until
august 30th, 2023. [00:05:00] You could potentially have another at this point, nine months of not having a student loan payment. And after the break will tell you whenever payments do resume, what you can expect in terms of what that payment will be, and any changes you need to make before they start again.
Before the break, we talked about what's going on in the court case and the real date that people can potentially see their student loan payments and interest resume on eligible loans. But what will that payment be? Some of these details are yet to be released, but if we're going off of how they have handled similar pauses in the past, I would expect that the payment when they start will be exactly what you were paying prior to the pandemic.
In a future episode, we'll tell you how to download your aid data file to find all the details about what your payment was prior to the pandemic. But I would assume that when these payments resume, you will be paying whatever you were paying prior to March of 2020 when the payment freezes first began.
Now [00:06:00] many of you who listen to this are on income driven repayment plans, and under those plans there's a set date every single year where your loan servicer asks you to recertify your income so they can recalculate your payment for the upcoming 12 months.
Initially, student loan payments were supposed to start in January of 2023, but the department at that time said that they were not going to ask anyone to re-certify their income before July of 2023. And this opened up a number of different planning opportunities. Because if the month that your loan servicer typically asked you to recertify your income came before July of 2023, it essentially means that you wouldn't have had to recertify at all in that year.
Instead, if that payment plan anniversary came before July, you would be able to keep your pre pandemic payment until that same month in the year 2024. It is a tremendous [00:07:00] deal and some people would've under those rules, been able to go another 18 months after payments resumed, under a payment that they were making off of what was likely their 2018 income.
Now, if your month came after July of 2023, then they would ask you in that same month to re-certify your income. If it came in October or November, then the good thing is you still had a pretty long time before your payment changed, but because it fell after July, you would have to recertify in the year 2023.
Now, this new ruling throws that date in the wind a little bit. We do not yet know if they're going to stick to July of 2023 as the date that they're going to first start asking people to re-certify, or whether they're gonna push it out in line with this payment freeze.
I would imagine, however, that they're not going to ask people to recertify their income before these student loan payments even start up again. So if I'm a betting man, and I'll come back and tell you if I'm wrong, I would [00:08:00] imagine that August 30th, 2023 will likely be the first date, the earliest point in time that anyone would have to recertify their income.
So now if I'm correct, there would really be another functionally two months of time where if you have a date that falls before August 30th, 2023, you would not have to recertify in that calendar year. You would be able to again, kick the can down the road to 2024. But even if I'm wrong, and they decide to stick with July, because of that payment freeze that could go out to August 30th, 2023, you're talking about another 10 months or so of no payments
under eligible loans that not only count for income driven repayment plans, they also count toward your credit for public service loan forgiveness. So by the time student loan payments start up again, There will have been over three years of delays where you haven't had any interest growing. You haven't had to make a payment, [00:09:00] but all of these credits have been applied to your totals for the various forgiveness programs, so this is still a very big deal.
In addition to that, we're in the middle of a series where we're talking about some of the permanent changes to the income driven repayment plan, as well as the permanent changes to public service loan forgiveness. The changes to the Pslf program, the latter of those two, are due to take place in July of 2023.
So not only is there gonna be a payment freeze, but when payments start back up again, it will be infinitely easier for public servants to make sure that each payment that they're making is counted towards the 10 year total they need to have their student loans wiped away. All of these things are working in concert, and until we get clarity about the forgiveness program, there are still some great things that are getting you closer to having your student loans forgiven, reduced, reorganized, or expedited. We'll give you the details as we have them. I hope you have a happy [00:10:00] Thanksgiving with your family and I will be in touch with more developments soon.
