The latest federal student loan payment extension and interest break was undoubtedly a victory for borrowers, but the new rules are confusing.
The big question for many borrowers should have an easy answer. When should I make payments again?
Unfortunately, there is no simple answer. Many complicating factors are at play: the break could end on June 30. It could end before then. When the pause ends, the payments don’t actually start. There could be another extension.
If you’re a borrower trying to do some financial planning, this confusion complicates things.
The Supreme Court will decide the date of resumption
After numerous payment pause extensions from the Biden and Trump administrations, we now find ourselves in a situation where the Supreme Court will decide when payments will resume…sort of.
When the courts suspended Biden’s one-time pardon program, the administration extended the payment and interest break. They wanted borrowers to have certainty about the rebate program before bills were due.
Previous expansions had a specific end date. This time, the payment break ends when the Supreme Court rules on the single discount plan or June 30…whichever comes first.
The timing of the Supreme Court decision
We know that the oral arguments in the single pardon case will take place on February 28.
Unfortunately, this nugget of information does not tell us when the Supreme Court will render its decision. After the hearing, the judges will discuss the case and vote on the decision. At this stage, judges will be selected to write majority and, if necessary, minority opinions. This process can take months.
Based on previous timelines from other court sessions, we can expect a decision from the Supreme Court by the end of June. The Biden administration choosing June 30 does not seem like a coincidence.
It is certainly possible that the court will issue a decision quickly because of the importance of the case. However, judges move at their own pace, and any cases that make it to the Supreme Court tend to be big ones.
Sherpa Tip: Don’t assume the outcome of the student loan forgiveness case. Many borrowers fear the Biden administration will lose in a right-wing Supreme Court.
However, the importance of this case goes far beyond student loans. At the heart of the case is the question of who is entitled to take legal action against the government. A ruling against the Biden administration could open the door to many new lawsuits, which will likely involve the Supreme Court.
A two-month warning for borrowers and services
The end of the student loan payment pause and the date when payments resume are different dates. Payments will resume two full months after the pause ends.
On the surface, this plan seems silly. If borrowers are not required to make payments, payments are still suspended.
Logical gymnastics is necessary in this case because the government has granted so many extensions. In fact, two of the previous expansions were called “final” expansions. They don’t have much credibility when drawing a line in the sand.
By putting a two-month gap between the end of the pause and the start of payments, borrowers and providers should be given advance notice that the Covid relief is actually ending.
September 1st is the best estimate for the resumption of payments
Based on their track record, the Supreme Court will likely rule on the pardon sometime in mid to late June. Although they haven’t ruled, the hiatus is set to end on June 30.
If we move forward two months from our Supreme Court decision projection, we are on August 30.
However, it should be noted that not all borrowers will have payments due on the same day. Our payment terms are staggered throughout the month. This policy will continue on reboot. So, if your monthly payment was due on the 10th, your first payment due will probably be September 10th.
It should be noted that September 1 is a best estimate and nothing more. If the Supreme Court rules on June 15, borrowers will have bills due between August 15 and September 15, depending on their billing cycle.
If the Supreme Court decides to speed things up, it could hand down its judgment in April or May. In this case, payments will resume much sooner.
The chances of another expansion
After seeing the Biden administration issue several “final” extensions that weren’t final, I’m hesitant to say this won’t happen again.
That said, I would be surprised if there was another one.
The timing of the restart is a political calculation more than anything. If another extension is granted, it brings the restart of the election cycle closer to 2024. Biden and Democrats don’t want voters heading to the polls angry at the rebate restart. If they restart things by September 2023, voters will likely have something newer to get angry about.
As a federal student borrower, I expect my budget to be tighter in September.
Steps to take now
A continued reprieve from student loan repayments is great, but borrowers can’t afford to do nothing during this time.
Here are some actions that should happen long before the reboot:
- Investigate IDR number update – Many borrowers will move significantly closer to loan forgiveness due to a one-time IDR payment update. However, some borrowers must act before May deadline.
- Ask your questions now – Calling your loan manager is rarely a pleasant experience, but things will be awful when bills are in the mail on reboot. Resolving repayment and forgiveness plan questions today will save you a lot of time in the future.
- Update your contact details – Have you moved in the last three years? Make sure invoices and notices are sent to your current address. Servicers have no sympathy for borrowers who were unaware of the bill’s due date. Updating contact information may appear to be doing your repair person a favor, but in reality, you are protecting yourself.