It’s been a crazy year for student loan borrowers, with many ups and downs surrounding student loan forgiveness and the ongoing pause on payments.
But borrowers may want to buckle up. Next year may be even wilder as new Biden administration initiatives go into effect, federal courts weigh in on key student loan relief programs, and a divided Congress presents fresh challenges for the White House.
When Will Borrowers Receive Student Loan Forgiveness Under Biden’s One-Time Cancellation Plan?
Federal courts have blocked President Biden’s sweeping one-time student loan forgiveness initiative, which was intended to cancel $10,000 or $20,000 in federal student loan debt for up to 40 million borrowers. The legal challenges brought by several Republican-led states and conservative-leaning legal organizations are heading to the U.S. Supreme Court, which will decide the fate of the program. The court has scheduled arguments for February 2023, and a decision should be issued by June. The court has allowed a nationwide injunction blocking the student loan forgiveness program to remain in place while the legal battle continues.
While the White House and student loan borrower advocates have expressed confidence that Biden’s program is perfectly legal, at least some Supreme Court observers believe that the conservative majority will be highly skeptical of endorsing such sweeping executive action. If the Supreme Court rules in the administration’s favor, 2023 will be the year when millions of borrowers receive unprecedented student loan forgiveness.
But if the court ultimately strikes down the program, there is significant uncertainty as to what may happen next. Will the Biden administration simply give up, or will it try to enact a separate student loan forgiveness plan under a different legal authority, as some advocates have suggested? If the latter, a whole new round of legal battles may ensue, leaving millions of federal student loan borrowers stuck in limbo.
Biden could call on Congress to codify his student loan forgiveness plan, but even under unified Democratic control (albeit with very slim majorities), that didn’t happen. With Republicans controlling the House in 2023, student loan forgiveness legislation is virtually guaranteed not to pass.
When Will The Student Loan Payment Pause End?
The Biden administration extended the student loan pause in response to the Supreme Court legal battle over the one-time loan forgiveness program. The national student loan pause has suspended payments and interest accrual on government-held federal student loans for nearly three years at this point.
Biden announced an extension to June 30, 2023, or to the date when the legal dispute over his student loan forgiveness plan is resolved, whichever happens first. There will be a 60-day grace period after the pause ends before payments will actually be due. The ambiguity of the latest extension inherently means that 2023 will be a year of significant uncertainty for borrowers. But if the Supreme Court rules against the administration, will the Biden administration extend the payment pause yet again?
Some advocates have suggested that Biden could simply continue to pause payments for as long as needed. However, Congress originally envisioned the student loan pause lasting six months when it passed the CARES Act in March 2020. The subsequent extensions by both President Trump and President Biden are rooted in the ongoing national emergency related to the pandemic; the HEROES Act of 2003 allows the Education Department to modify federal student aid programs during such an emergency.
With Republicans controlling the House of Representatives in 2023, there is a reasonable possibility that congressional Republicans could initiate a legal challenge to try to block any further extension of the student loan pause, arguing that it exceeds the authority Congress originally envisioned when it passed the CARES Act. That would put yet another significant student loan relief program in the hands of federal judges, and a protracted legal battle could lead to another lengthy period of uncertainty for borrowers.
Reforms to Federal Student Loan Income-Driven Repayment (IDR) Plans
Significant changes to Income-Driven Repayment (IDR) plans — federal loan repayment plans tied to a borrower’s income that lead to eventual loan forgiveness — are set to go into effect in 2023. This includes the IDR Account Adjustment, which will cancel the federal student loan debt for many borrowers with very old loans while pushing millions of other borrowers closer to eventual student loan forgiveness. The changes are expected to be implemented by the summer of 2023.
In addition, the Biden administration will release a new income-driven repayment (IDR) plan, which is expected to be more affordable than the currently-available options. While this is generally good news for borrowers, specific details on this new IDR plan have yet to be released, which is noteworthy since the administration has released draft regulations governing nearly every other aspect of the federal student loan system.
Some have speculated that the administration is waiting to finalize the new IDR plan in light of the Supreme Court fight over Biden’s loan forgiveness program, and may create a much more generous IDR plan as a backup option if the loan forgiveness program gets struck down. The statutory authority for the Education Department to establish the parameters of a new, more generous IDR plan is fairly broad and arguably is less in dispute than the legal authority the administration relied on to enact the one-time loan cancellation program.
However, if the Biden administration creates an extremely generous IDR plan (for instance, one that exempts a huge amount of income, or dramatically shortens the time spent in repayment before a borrower can receive loan forgiveness), there might be fresh legal challenges — including, potentially, by the Republican-led House of Representatives. This could again would put the fate of federal student loan borrowers in the hands of federal court judges, injecting further uncertainty into the federal student loan system.
New 2023 Rules for Federal Student Loan Relief Programs
New federal regulations updating key student loan relief programs are set to go into effect in July 2023. These include changes to Public Service Loan Forgiveness (PSLF) that expands the definition of qualifying payments and qualifying employment; reforms to the Total and Permanent Disability (TPD) discharge program that will make it easier for disabled borrowers to get their federal student loans forgiven; and updates to Borrower Defense to Repayment and Closed-School Discharges that will streamline the process for borrowers defrauded by their schools to request and receive relief. The new regulations will also reduce instances of interest capitalization.
The enactment of new regulations is generally good news for borrowers. But whenever there are significant changes to the federal student loan system, it can lead to borrower confusion, bureaucratic delays, and administrative errors. Expect the rollout of the changes to be bumpy, especially in the latter half of 2023 as officials, loan servicers, and borrowers get up to speed on the new changes.