Washington
CNN
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Millions of student loan borrowers are on the hook after the Supreme Court struck down President Joe Biden’s student loan repayment plan.
The plan, known as SAVE (Saving in Essential Education), will be put on hold until the 8th Circuit Court of Appeals issues a ruling on its legality — which could take weeks or more .
Reducing student loan debt has been a top priority for the Biden administration, and the SAVE plan is one of the most significant changes it has made since the Supreme Court struck down its desegregation program. of student loan forgiveness last summer.
For the nearly 8 million people who have signed up for SAVE since the Biden administration took office last year, the plan promised lower monthly payments and a faster path to loan forgiveness compared to plans other to pay.
In response to the growing legal battle, the Department of Education last month suspended payments for every borrower who signed up for the scheme.
But the backlash has caused confusion for many borrowers about how much they will owe. And it remains unclear whether the court’s ban applies to debt relief through other student loan repayment plans.
The frenzy is intensifying as the pandemic period for collecting unemployed student loans will end on October 1st.
This week’s Supreme Court order is the latest development in what has become a months-long legal battle that began when two lawsuits were filed by Republican-led states earlier. this year.
Now, borrowers must wait for the Eighth Circuit Court to rule on the merits of the states’ case before they know how much their student loan payments will go forward.
The appeals court of St. Louis is full of Republican presidential candidates, and only one of its active judges has been appointed to the court by a Democratic president.
Here’s what lenders need to know:
About 8 million borrowers who are already enrolled in SAVE are placed on an interest-free loan during which they do not have to make a monthly student loan payment.
By enrolling in SAVE, these borrowers were promised monthly payments that were less than half of what they would have to pay in other payment plans. They are also promised student loan forgiveness after at least 10 years of repayment.
A moratorium is good news for many borrowers. But it may delay student loan forgiveness for some of them.
This is because the forbearance period will not count towards the number of payments required to qualify for debt relief under programs such as Public Loan Forgiveness.
Under the plan, eligible public sector workers can see their remaining student loan debt canceled after making 120 qualifying monthly payments.
Some borrowers may be eligible to “buy” months of PSLF credit for the time spent in forbearance due to the stay of the court system. More information about that process can be found on the Federal Student Aid website.
The federal government offers several other payment plans, although SAVE offers more generous terms for low-income borrowers. In addition to SAVE, there are other financing plans that also tie the monthly payments to the borrower’s income and the size of the house – which can reduce the borrower’s monthly amount.
But for now, student loan servicers have stopped processing applications for other types of repayment plans due to the 8th Circuit Court’s temporary ban on SAVE.
Although student loan borrowers can still apply by submitting a PDF, the Department of Education said on its website that they “should expect long delays in processing applications.”
The pause in application processing could cause problems for recent college students who are due for refunds this fall. Currently, these borrowers may be automatically enrolled in a standard 10-year plan that requires higher monthly payments than the cash plan they must apply for.
In court documents, state attorneys said the court’s ban on the SAVE program could prevent the Department of Education from providing relief available to borrowers through other funded programs.
There are approximately 2.6 million borrowers in the Pay As You Earn (PAYE) scheme and the Independent Repayment (ICR) scheme that may be affected. Those plans offer student loan forgiveness for borrowers who have made monthly payments for at least 20 years.
The Eighth Circuit denied the government’s request to clarify what exactly is involved in a temporary injunction.
“The Eighth Circuit’s refusal to clarify that order makes it clear that it goes even further, barring amnesty under the original ICR plan and the PAYE plan,” state attorneys wrote in a court filing.
CNN’s Devan Cole contributed to this report.
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