With so many changing factors affecting President Joe Biden’s student loan forgiveness initiatives, it can be hard for borrowers to stay informed of the updates. Numerous federal courts have blocked President Biden’s one-time student loan forgiveness program that would have canceled $10,000-$20,000 in federal student loan debt for millions of people. Two appeals — one from the 8th Circuit Court of Appeals, and one from the 5th Circuit Court of Appeals — are going to the U.S. Supreme Court. The nation’s highest court will likely make the final decision on whether Biden’s plan, in its current form, can proceed.

Verbal arguments before the Supreme Court are set for February 2023, and a decision could be issued anytime between then and next summer. For now, the program remains frozen. No borrowers are receiving student loan forgiveness under the initiative, and borrowers who have not applied are unable to do so now.

Because of the continuing lawsuits over the one-time student loan forgiveness program, the Biden administration has extended the student loan pause — which has stopped payments and frozen interest on government-held federal student loans — into 2023. The pause will continue until 60 days after the student loan forgiveness litigation is fully determined, or 60 days after June 30, 2023 — whichever happens first. In this MoneyHacks episode, I talk more about the student loan forgiveness updates and my take on the best steps you can do now while we all await the court’s decision.



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Video Transcript:

Hey, this is Alex Assaley and it's episode number 99 of Money Hacks. As we're winding down, the end of 2022 here in the early part of December, one of the questions we're getting in a lot of our financial coaching sessions is around student loan forgiveness. Of course, earlier this year, the Biden administration passed an executive order that would allow up to $10,000 of student loan debt to be forgiven, or $20,000 for those who had a Pell Grant.

When they were a student based on certain income limits or limitations. This program was contested and struck down by a court, and it's now been appealed and is headed to likely a battle in the Supreme Court to see if the program if the student loan forgiveness plan will move forward.

In the meantime, a lot of individuals, investors, and savers we talk to who have student loan debt are wondering, what should I do? Of course, for the last couple of years, student loan payments have been under a moratorium where they've not been accruing interest and you've not been required to make payments to your student loans.

And we know that during the pandemic period and now into 2022, a year where we've had a rough time in the markets, high levels of inflation, and increased costs that a lot of individuals and households have taken advantage of that moratorium to manage their cash flow and not pay their student loans. The moratorium period was set to end on December 31st of this year so that in January you would be required to resume your payments, and interest would continue to accrue on those payments. But just recently, in the last week or so the administration has extended that one more time right now out to the end of June in an effort to see if their student loan plan can get finalized through hearings in the Supreme Court so that anybody who has certain levels of debt can have it forgiven, and we know a lot of people have already actually applied, have completed that application, which is in a bit limbo. So, what should you do now? Well, first of all, I would encourage anybody who has student loan debt that exceeds the proposed limits of forgiveness, $10,000 or $20,000 to start repaying your student loans because it's very likely if the White House is able to move forward with their plan that those are the limits that are going to be set.

They won't go higher and, you know, potentially they're going to be at that level or maybe less, and therefore if you have student loan debt above those limits really, this is a great opportunity to start paying down those student loans in the next six months where you're not accruing interest. It's a chance to allow your payments to go further.

And so, I think this is a good time as we get to the end of the year, to reassess your cash flow, reassess your budget, and if you're able to make payments to your student loans and maybe make higher payments while they're not accruing interest, this is the right time to do it. Please don't delay and wait until the middle of next year when the loans kick back in again and you're required to start making payments and you're accruing interest without taking advantage of this period of time. Obviously, each individual circumstances are different and you might have other financial goals or priorities that you're trying to navigate in context or in conjunction with your student loan payments.

For those who have student loan debt that's below that limit less than $10,000 or $20,000. You met or you're below the income threshold that would allow you for the forgiveness plan, assuming it moves forward you know, it's a little bit of a Catch-22. Do you start making payments and pay them down or pay them off without interest?

Potentially giving up some of that forgiveness you would've received if it is to get reinstated or do you hang tight? I think, again, your individual situation will vary and warrant the action steps that are right for you. But if you have questions, if you'd like to go through a financial planning session and identify the best steps you can take when it comes to your overall financial picture as well as your student loans, please feel free to reach out to us. You can find us on social or for those who we serve as your retirement plan advisor. Send us an email or give us a call and we can talk more about this. At any rate, in 2023, at least the early part of the year we anticipate we'll have some sort of resolution one way or another on what this means for the initial efforts for student loan forgiveness.

Hope this helps. Wishing everybody a happy December, and a happy holiday season, and see you soon.