Episode Transcript
Brenton: [00:00:00] just a few days back, the Supreme court heard two cases from parties seeking to strike down the Biden administration's federal student loan forgiveness program.
In this episode, we give you a quick rundown of what's going on in both cases, when we can expect a decision and how the timing of that decision impacts when you'll start your federal student loan payments, let's get started.
Hello. My name is Brenton Harrison of Escape Student Loan Debt, and your host for the escape student loan debt podcast. We're coming to you today with a quick episode. That's kind of wedged in between the series we're doing on the changes to the federal student loan repayment plans that are due to come in July of this year.
And the reason we're wedging an episode in between that series is because last week, six days ago, in fact, the Supreme court heard the case of whether or not they're going to continue or strike down the [00:01:00] Biden administration's federal student loan forgiveness program. Now to me, I've been very clear, I think, about the fact that I don't think the forgiveness program will last, which I'll share a little bit more about in this episode, but the reason we want to give you the details is because the timing of when the Supreme court makes that decision is very relevant for what's to come for all federal student loan borrowers.
So first a recap of what's going on in the case. A big reason, the lower courts decided to strike this down or pause it is because they received two different lawsuits by different parties. The first was a group of six Republican led states who said that they were being injured by the fact that the Biden administration was forgiving these student loans. And the main reason that they consider themselves being injured is because they feel that there is a certain revenue that their states would receive as a result of continuing to service that debt. And the main entity, they kind of propped to the front of this lawsuit without participation by the [00:02:00] entity, was The Missouri higher education loan authority. MOHELA is an entity that was created by the state of Missouri, but actually functions as a separate student loan servicer for federal debts. You will recall that MOHELA is actually the servicer that took over from fed loan servicing when it comes to processing public service loan forgiveness applications.
So even though it was founded by the state of Missouri, it services debts from all over the country. And the assertion of these Republican led states is that because some of that revenue goes to Missouri as a state, and there are debts that MOHELA owes to the state of Missouri, that that state is harmed by the Biden administration, forgiving the debt.
The second lawsuit was filed by two borrowers who felt they were harmed by the structure of the program.
It's a male and female who filed the lawsuit. The woman in the lawsuit claims that she was harmed because she has the type of loan that is not eligible for [00:03:00] forgiveness. Now, to me, I haven't dug into whether or not that's a private loan or a type of federal student loan called an FFEL loan or a Perkins loan.
I have just tried to save myself the anger , because I do know that if they are federal loans that are currently ineligible, as we have covered any currently ineligible loan can be made eligible by consolidating it into a direct loan. So I just haven't even wanted to make myself angry to figure out if she had federal debt or private student debt.
But the second person in this lawsuit, the man in the lawsuit is upset, not because he doesn't qualify for any forgiveness at all, but because he only qualifies for the $10,000 option instead of the $20,000 option. So rather than him taking his $10,000, he's decided that he wants to cancel this whole program for everybody and get nothing for himself.
Not my decision to make, but that's his rationale. And these are the two different parties that have taken the Biden administration department of education to the Supreme [00:04:00] court
challenging their authority to do so. The Biden administration is claiming that they have this authority under something called the heroes act. And the heroes act was passed years ago. And it gave administrations broad authority to make changes as a result of an economic or Countrywide emergency, to make sure that its citizens were not unduly harmed.
So those are the claims on each side, you have two parties who are saying that they are harmed by this program and you have the Biden administration's department of education saying that this is a crucial thing that they must do to make sure that borrowers are not worse off as a result of the pandemic.
So those are the two sides at play. I would say that I still believe it is unlikely that this program will pass at the end of the day. But after the break, we'll tell you how the timing of when that decision is made is relevant to you and what you can do while you wait to make sure you're not caught slipping when student loan payments resume.
Before the break, we talked about the [00:05:00] different legal elements at play for the bind administrations of federal student loan forgiveness program. But as I shared, I think it's unlikely to pass, but the timing of the decision is crucially important. Now, typically the Supreme court decides their cases or issues their decisions in June or July at the end of its term. And if this were the case with federal student loans, we have to go back a few episodes to the announcement of the forgiveness program and the resumption of student loans to know what this would mean.
If you recall, student loan payments will resume the earlier of 60 days following the decision issued by the Supreme court or the end of may. And it's whatever comes first. So let's say that for some reason, they decided on March 15th that they were going to issue their decision.
60 days following March 15th, student loan payments would kick back up. Now, technically it takes about 30 days for that locomotive to get going again. So at 60 days from March 15th, [00:06:00] in this example, it would actually probably be more like 90 days before your student loan payment would be due.
Now, if they decide to not issue the decision until June or July, that means it would fall past the end of may. So, if it comes after that point, the administration has said that May 31st is the line in the sand. And even if that decision has not been issued, the clock would start at the end of may. And 60 days later, student loan payments would resume.
Now, this is getting into the weeds a little bit, but I would say if I were a betting man, that if the forgiveness program is disapproved, the administration might try to extend the student loan payment freeze again. But if we are going to assume that's not the case, then that means that May 31st is technically the day that we need to mark on our calendars, because then we would have two to three months before federal student loan payments resume.
So, what are we going to do if we operate off of that assumption? Well, the first thing we need to do is we need to remember [00:07:00] what our student loan payment was before the pandemic started. And to do so, you need to go to student aid.gov and download your aid data file. We'll put a sample aid data file in the show notes of this episode. But if you look at that aid data file, it will highlight not just the details of your loans, but also the student loan payment plan you were on prior to the freeze and the student loan payment under that plan. And I would advise you to build that plan into your budget for two to three months before payments resume. You need to build back that muscle of making the payments. So if you were making 200 or $300 a month as a payment prior to the pandemic, two or three months before you need to start auto saving two or $300 a month from your checking to your savings, just to get used to that money coming back out of your budget again.
In addition to that, when you look at that student aid data file, you need to verify that you have all direct loans. We have covered that in addition to the student loan [00:08:00] payment freeze. In addition to the potential student loan forgiveness program, there is also an income driven repayment plan adjustment, and a public service loan forgiveness waiver.
These programs exist to give past credit that would not have counted for people who were trying to pursue forgiveness under IDR plans or public service loan forgiveness, but in order to have those credits restored, or I would say initially given to your account, you have to have direct loans only. And May 1st is the deadline by which you have to consolidate any ineligible loans to make sure they're eligible for this new credit. So by looking at that student aid data file, you can see whether you have a Perkins loan. You can see whether you have an FFEL loan that's not eligible. And if, so you want to go through the process of consolidating that loan using the direct consolidation loan application, the link to which we'll also put in the show notes.
And lastly, the final thing to do is to stay tuned for the next couple of [00:09:00] episodes of this podcast. Because if you have been paying your loans or had been prior to the pandemic, using an IDR plan, specifically, plans like pay as you earn and revised pay as you earn. You will have at least until July to decide whether to stick on a plan, like pay as you earn, or whether to take advantage of new rules, like revised pay as you earn.
Regardless of the decision you choose, by July, you could be in a position where that decision is irreversible. So I highly encourage you to go back to the last couple of episodes that we've done on this topic. And we're going to do one or two more to make sure you understand what's at stake because all of these things are happening within the next few months.
So keep your eye on the news, turn on your Google alerts for the Biden administration federal student loan forgiveness program. Because whether or not you're eligible for that forgiveness, it starts the clock. When they make the decision on, when you actually have to make that first student loan payment.
I'll see you next time.
