Department of Education no longer accepting forgiveness applications: What happens next for borrowers?
A US District Court judge in Texas struck down President Joe Biden’s student loan forgiveness plan, leaving many borrowers wondering what to do next.
US District Judge Mark Pittman called it an “unconstitutional exercise of Congress’s legislative power.”
Now that Biden’s loan forgiveness plan has been ruled unconstitutional, here’s what borrowers need to know.
Is the Biden administration appealing the ruling?
Yes, White House Press Secretary Karine Jean-Pierre tweeted Thursday that the Biden administration has filed an appeal on the ruling through the Department of Justice.
“For the 26 million borrowers who’ve given @usedgov the necessary information to be considered for debt relief — 16 million of whom have already been approved for relief — the Department will hold onto their info, so it can quickly process their relief once we prevail in court,” Jean-Pierre tweeted.
A St. Louis federal appeals court agreed to keep the plan on hold on Monday, Nov. 15 while the appeal is underway.
“If the 5th US Circuit Court of Appeals is asked to block Pittman’s ruling pending appeal, the losing side could then turn to the Supreme Court,” AP News said.
What should borrowers do next?
Biden administration officials had urged people to continue to submit applications to the website despite the ruling.
However, as of this Monday, the Federal Student Aid website displays a message saying it is no longer accepting applications as it attempts to overturn the ruling.
“If you’ve already applied, we’ll hold your application. Subscribe and check back here for updates,” the message says.
Several financial planning experts have offered advice to borrowers, who may be in limbo because of the ruling.
Deva Panambur, founder of Sarsi LLC, told NJ Advance Media that borrowers should be prepared for “surprises like the current legal challenge to the Student Loan Forgiveness Plan.” The adjunct professor at Montclair State University, who teaches students about personal finance, also advised to create a financial plan based on available opportunities rather than expected changes in public policy and rules.
“Specific to student loans, borrowers who need relief should consider existing programs, such as the Income-Driven Repayment (IDR) Plan, the Public Service Loan Forgiveness (PSLF) and other available plans, if they are eligible for them,” Panambur added. .
Jeanne Kane, a certified financial planner who manages JFL Total Wealth Management, told NJ Advance Media that students should know in advance how much they will owe, assuming the student loan pause ends. She says to call student loan servicers now before the lines get busy in December and to “set up automatic bill pay” with a bank.
Dawn Brown, a managing director and wealth advisor with Peapack Private Wealth Management, says borrowers should review their budgets based on their monthly income.
“Review your previous loan repayment amount to try and estimate how much will be due to pay in January,” Brown told NJ Advance Media. “Add the loan payment to fixed [monthly] costs and reduce discretionary spending to accommodate loan payments.”
Brown added that if a borrower’s income does not cover payments, that person should try to change their repayment plan.
Jim McCarthy, a certified financial planner with Directional Wealth Management LLC, told NJ Advance Media that borrowers should make a game plan for repayment.
McCarthy explained that borrowers should “list out the loans, balance and interest rates” and pay the minimum balance on everything except the smallest loan balance.
Once that loan is paid off, it “snowballs” into the next highest loan rate, he continued.
Scott Buchanan, executive director of the Student Loan Servicing Alliance said borrowers and their families should be wary of scam artists, who try to take advantage of them.
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