Following the announcement of President Joe Biden’s promise to erase up to $20,000 in student loan debt per borrower, the White House confirmed that student loan payments will resume on January 1, 2023. Payments and interest were suspended in March 2020, at the onset of the epidemic, and then delayed eight times over the course of two administrations.
However, with Biden’s debt relief package facing several legal challenges, the moratorium was extended until June – and may end even later. “It isn’t fair to ask tens of millions of borrowers eligible for relief to resume their student debt payments while the courts consider the lawsuit,” Biden said in a video statement in November.
Here’s all you need to know about federal student loan payments, including when repayment will resume, whose loans have been suspended, and what happens to default students. Find out if you should maintain paying down your loan during the break and the benefits of refinancing your student loan for additional information on student debt.
When will student loan payments and interest resume?
On November 22, Biden said that the delay will be extended “to no later than” June 30, 2023, to provide the Supreme Court time to consider the issue during this term. According to the US Education Department, student loan payments and interest will resume 60 days after legal challenges are resolved. If the legal processes do not end by June 30, payments will resume 60 days later – on August 29, 2023.
The moratorium might be extended again, but experts believe it would be a gambit to buy time rather than a permanent solution to the student debt issue. The intent is “to make sure borrowers don’t have the rug pulled out from under them, rather than an indefinite replacement for loan forgiveness,” an unnamed White House aide told The Washington Post in November.
What does the student loan forgiveness plan provide?
The administration’s debt relief package is meant to help the more than 45 million Americans who owe $1.6 trillion in student loans. Individuals earning less than $125,000 per year, or married couples earning less than $250,000 combined, would be eligible for a $10,000 loan forgiveness under the scheme. Borrowers receiving federal Pell Grants would be eligible for an extra $10,000 in relief, totaling $20,000 in student debt forgiveness.
Which student loans are currently paused?
The student loan payment and interest moratorium apply to all federally owned student loans, regardless of who services the loan. Eligible student loans include:
- Direct federal student loans
- Federal Family Education Loan program loans held by the Department of Education, aka FFEL
- Federal Perkins Loans held by the Department of Education
- Defaulted FFEL loans not held by the Department of Education
- Defaulted Health Education Assistance loans, aka HEAL
Student loans that are not eligible include:
- Nondefaulted FFEL loans not held by the Department of Education
- Federal Perkins Loans not held by the Department of Education
- Nondefaulted HEAL loans
- Private student loans
Payments and interest on qualified student loans were automatically halted on March 13, 2020. If you are unsure whether your loan payments have been suspended, contact your loan servicer.
What are the legal challenges to the student loan forgiveness plan?
A Texas judge declared in November that Biden’s plan to forgive up to $20,000 in student debt for each qualifying borrower was an illegal use of legislative powers by the executive branch. Initially, the Justice Department claimed that the Higher Education Relief Opportunities for Students Act of 2003 (the Heroes Act) authorized the government to “alleviate the hardship that federal student loan recipients may incur as a result of national emergencies.”
But Judge Mark Pittman ruled that the Heroes Act “does not provide the executive branch clear congressional authorization to create a $400 billion student loan forgiveness program.” The White House challenged Pittman’s decision, but during the appeals process, a federal appeals court imposed an injunction on the relief plan.
Other legal obstacles include: Nebraska, Missouri, Arkansas, Iowa, Kansas, and South Carolina filed a lawsuit in September, arguing that Biden’s plan would threaten tax revenues from companies that invest in and handle student loans.
“It will unfairly burden working-class families and those who chose not to take out loans or have paid them off with even more economic woes,” Missouri Attorney General Schmitt said in a statement at the time. “The Biden Administration’s unlawful edict will only worsen inflation at a time when many Americans are struggling to get by.”