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After applying for student loan forgiveness, some borrowers receive what sounds like good news from the US Department of Education.
“We have reviewed your application and determined that you are eligible for loan relief under the Plan,” according to a letter sent by Education Secretary Miguel A. Cardona.
Still, the notice goes on to say that “Unfortunately, a number of lawsuits have been filed challenging the program which has blocked our ability to pay your debt at this time.”
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Shortly after President Joe Biden announced his sweeping plan to cancel up to $20,000 in student debt for millions of Americans, a number of conservative groups and Republican-backed states attacked the politics in the courts. Two of those lawsuits succeeded in at least temporarily halting aid, and the Department of Education shut down its loan cancellation portal this month.
The Biden administration believes its plan is legal and will prevail in court, but for now the financial future of millions of Americans remains uncertain.
Here’s what we know about the policy’s legal delays.
Delays could last months or more
In a recent Supreme Court filing, the Biden administration warned that legal battles over its pardon plan could drag into 2024 if the cases are not decided on an expedited basis.
However, such a long delay is unlikely, said higher education expert Mark Kantrowitz.
He pointed out that the Ministry of Education hopes its loan services will apply the relief to people’s accounts within two weeks after it gives it the green light to do so. This means that if he is allowed to continue canceling student debt, he can act quickly and further legal challenges “will become moot”.
Around 26 million borrowers have already applied for the forgiveness. Those who haven’t yet shouldn’t worry, Kantrowitz said. The government will simply reopen its application portal if its plan succeeds in court.
The loan payment break can be extended again
The Biden administration is reportedly considering extending the payment pause on student loan bills again. This relief policy has been in effect since the start of the coronavirus pandemic.
It would be the eighth time borrowers have had more time to suspend payments, but it could be the White House’s only option with so much still up in the air, experts say.
“Restarting repayment now will be messy because the Biden administration has promised forgiveness to tens of millions of borrowers who will be upset about having to make payments on loans they expected to be forgiven,” Kantrowitz said. .
Indeed, a senior Department of Education official recently said student loan default rates could rise significantly if his loan forgiveness plan is thwarted, “due to ongoing confusion over what they must”.
Borrowers have other options for help
Those who are frustrated by the possibility of student loan forgiveness failing can find some solace in a number of other options that may offer help.
The Biden administration recently announced a new repayment plan for certain distressed borrowers that would cap monthly bills at 5% of their discretionary income. It is expected to go into effect next July, Kantrowitz said. (Use one of the calculators on Studentaid.gov or Freestudentloanadvice.org to find the most affordable repayment plan for you.)
The Civil Service Loan Forgiveness Scheme, which allows those who work for the government and some non-profit organizations to have their debt forgiven after a decade, also benefits from a number of improvements .
If you are unemployed or experiencing other financial hardship, you can file for an economic hardship or unemployment deferment. These are the ideal ways to defer your federal student loan payments, as interest does not accrue under them.
If you don’t qualify for either, you can use an forbearance to continue to suspend your bills. Remember that the interest will increase and your balance will be larger, possibly much larger, when you start paying again.
And for those who find themselves in the most difficult situations, it may soon be easier to pay off their student debt in the event of bankruptcy.
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