Student loan borrowers survived the debt ceiling negotiations largely unscathed.
At the start of the process, borrowers had reason to worry. Biden was desperate for a deal, Republicans were uniformly opposed to most student loan relief programs, and borrowers didn’t have an army of lobbyists acting on their behalf.
The end result is pretty close to a best-case scenario for borrowers. It’s not a total win, but things could have been much worse.
Payment Pause Officially Ends August 30th
When President Biden announced the most recent payment pause, he said it would end 60 days after the Supreme Court ruled on the one-time forgiveness plan or 60 days after June 30th — whichever comes earlier.
Under the terms of the debt ceiling agreement, the payment pause will end 60 days after June 30th.
In other words, the new legislation formally ends the pause as previously planned.
Speaker of the House Kevin McCarthy has boasted that the student loan payment pause is “gone” as a result of the deal. He is technically correct. Both sides hope this “win” for Republicans is sufficient to get the necessary votes to pass the debt ceiling legislation.
The downside for borrowers is that it closes the door on future extensions of the payment and interest pause.
No Repayment of Back Interest, No Instant Start
The Republican House recently passed legislation that would have immediately ended the payment pause and retroactively charged borrowers for interest during the break.
Though the bill was seen as dead on arrival in the Senate and certain to get vetoed by the President, it laid out the Republican student loan goals.
Instead, the payment pause will end as scheduled.
A Hidden Benefit to Borrowers: By having a specified date for the restart in the debt ceiling bill, borrowers get some much-needed repayment restart certainty.
We can prepare for payments to resume — and critically — servicers can staff up and train for payments to resume in September.
No Changes to One-Time Forgiveness
Another demand of Republicans heading into the debt-ceiling negotiations was that the plan for up to $20,000 of forgiveness per borrower get canceled.
The deal struck by Biden and McCarthy doesn’t address the one-time forgiveness.
At this point, it appears both sides are content to hope that the Supreme Court rules in their favor.
Ending Lawsuits to End the Payment Pause
Several different lawsuits have been filed to end the payment and interest pause.
From the time they were filed, these lawsuits appeared unlikely to force any changes. If the new debt-ceiling bill passes as expected, it would likely end the lawsuits.
For the parties suing to end the payment and interest pause, their case centers around one key argument: Congress didn’t authorize the pause to last this long.
The text of the debt ceiling bill specifically authorizes the payment pause to last until August 30th.
For borrowers, this all but eliminates the risk of a federal judge issuing a ruling that immediately resumes student loan payments.
Biden’s New IDR Plan Stays Alive
Last year, the Department of Education announced a new proposed IDR plan to considerably lower payments for most IDR borrowers.
This was another item that many Republicans wanted to be addressed in the debt ceiling bill.
Fortunately for borrowers, the proposed IDR plan remains in development.
Administrative Regulations and Congressional Approval: Departments in the executive branch can draft certain new rules and regulations without getting explicit approval through Congress.
The Department of Education intends to go this route for the new IDR plan. A bill from Congress could stop it, but getting approval from the House and Senate isn’t necessary.
The Best-Case Scenario?
There was plenty of reason for student loan borrowers to be concerned heading into the debt ceiling negotiations.
The Biden administration desperately needed a deal to avert an economic collapse, and Republicans appeared fixated on ending multiple forms of student loan relief.
The bill’s inclusion of an end date for the relief is a mixed bag. Borrowers won’t be getting a further extension, but they get certainty of a restart date several months in the future, and it likely ends the lawsuits pushing for an immediate restart.
Every other aspect of the legislation appears to be a clear win for borrowers. Both the one-time forgiveness plan and the new proposed IDR plan are still alive.
Things could have gone much worse.