Make Ends Meet: Options for student loan repayment

LOUISVILLE, Ky. (WAVE) - The Supreme Court struck down President Biden’s student loan cancellation plan on Jun. 30.

The ruling concluded that the administration does not have the authority to cancel student loan debt under the HEROES Act. Borrowers must now prepare to make their first payment in October 2023 while interest begins to accrue in September.

Marcus Warren of Warren Wealth Management & Tax Planning says he understands that millions are disappointed, but it is time to now start planning to repay that debt with as little problems to your budget as possible.

“Forty million people were up and ready to have this student loan forgiven,” Warren said.

According to the Federal Reserve, the average American borrower carries an estimated $30,000 in student loans or more.

The U.S. Department of Education was preparing to provide up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the Department of Education and up to $10,000 in debt cancellation to non-Pell Grant recipients with student loan Forgiveness. That program was struck down by the Supreme Court.

“A little less than half had already been approved for it to be forgiven,” Warren said about borrowers who had applied for forgiveness on the site.

Payment of those student loans begins again in October 2023. Interest on those loans starts to accrue again on September 1, 2023.

“What individual borrows need to do is they need to start planning for that and start to budget for that extra added expense that’s going to be there that they thought wasn’t going to be there,” said Warren.

At-risk borrowers unable to begin payments immediately will have some protections. The President has what is being called a default “on-ramp” repayment program.

”They’re going to let you ease into these payments without any consequence,” said Warren. “If you’re not able to pay right away.”

You will have a 12-month on-ramp period where late, missed, or partial payments will not be considered delinquent, reported to credit bureaus, placed in default, or referred to collection agencies. You do not need to take any action to qualify. The period runs only from October 1, 2023, through September. 30, 2024.

“It is a 12-month runway,” said Warren. “It’s not a 12-month forbearance or deferment!”

There are other programs to help if this burden of debt is too great. One is the Public service loan for those who work in government, public service or nonprofit.

”You have to have had your loan for ten years then have made payments on it for ten years then you can qualify for the rest of that partially being forgiven, “said Warren.

Teachers, nurses, doctors, veterans, and active-duty military are also eligible for federal, or state programs specifically designed to help manage or forgive student debt. There is also an income-driven payment plan that offers relief.

”They’ll look at your income, the income you have currently coming in, and they’ll look at your budget expenses,” said Warren. ”Your monthly student loan payment will then be set to an amount that is affordable based on your current income.”

Whatever you do, don’t ignore your student loan payment.

”When you are signing on the dotted line you are basically promising to pay back that money and when you don’t, there are consequences,” said Warren.

Unlike other unpaid debt, an unpaid student loan will not fall off your credit report in seven years. It can be a lifelong blemish.

”They can garnish your wages if you’re supposed to get a tax refund,” Warren said. “They can take that. The government has the ability to garnish your social security benefits also.”

The latest news on student loan debt was announced on July 14, 2023, as the Biden Administration announced that more than 800,000 borrowers of federal student loans would be forgiven. These borrowers were enrolled in income-driven repayment plans and accumulated the equivalent of either 20 or 25 years of qualifying monthly payments. This is a result of what the department calls a fix to IDR plans.

To prepare for the October deadline, go to your StudentAid.gov profile if you have made one, make one if you do not have one, and make sure your contact information is current to avoid any crucial updates or information.

If you had auto-pay before March 13, 2020, you must re-enroll in autopay. Your payments will not automatically restart. If you sign up for automatic payments, the servicer takes a quarter of a percent off your interest rate. That saves you a little bit of money.

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