After the Supreme Court struck down the White House’s comprehensive plan to cancel student debt, the White House quickly finalized a new student loan package, and President Biden promised that there would be more to come.
What’s at stake for the first time since the pandemic started, federal student loan payments are due in September, and millions of Americans will find it challenging to make the payments.
The debt forgiveness program that the Supreme Court rejected yesterday would have erased up to $10,000 for borrowers under a specific income level, and up to $20,000 for recipients of Pell Grants, and would have cost the federal government about $400 billion over the following ten years.
What will happen next to student loans:
- The administration is looking into additional options to provide borrowers with a break, albeit the consequences will be significantly smaller, at least for individual borrowers.
- Biden also committed to pursuing a different route toward debt relief, which the Department of Education has started.
- He also introduced a one-year grace period for loan repayments, during which time borrowers who are late on payments won’t be reported to credit bureaus, declared in default, or referred to debt collection firms.
- The Department of Education also completed a new income-driven loan repayment strategy, which Biden called “the most generous repayment program ever.
Payment Suspension, Repayment Program Overhaul, and Future Costs:
- It had also prolonged the payment suspension throughout the epidemic numerous times, costing the federal government close to $200 billion, but was unable to do so once more due to a clause in the debt ceiling agreement.
- The company’s overhaul of the Income-Driven Repayment program, which was completed yesterday, would lower many borrowers’ monthly payment responsibilities and, in time, lead to partial loan forgiveness.
- According to some calculations, the federal government may have to pay almost as much for the plan as the loan forgiveness program would have over the following ten years. The scheme will be open to new borrowers as well, in contrast to loan forgiveness.
New program details:
- Under this scheme, borrowers who earn more above a specific amount would be expected to contribute less of their discretionary income to the loan (5% for undergraduates as opposed to the present 10%).In the end, they might get some of their debts pardoned.
- All student loan borrowers who are in repayment are eligible to enroll in the new plan, according to a fact sheet from the White House, and they will be allowed to do so later this summer before any monthly payments are due.
- According to Katharine Meyer, a fellow at the Brookings Institution, the early completion of the process gives borrowers greater certainty about how to structure repayment this fall.
The majority of undergraduate borrowers can anticipate just repaying a portion of their loans as a result of the modifications, which effectively convert student loans into grants, according to Adam Looney of the University of Utah.
The appeal of taking on debt, and higher levels of debt, could be even greater including for higher-income students who might otherwise cover some of the costs out of pocket.