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Tips for Borrowers While Biden Forgiveness is in Legal Limbo

Once again, federal student loan borrowers face an uncertain future. President Biden’s recently announced forgiveness program may not happen.

Written By: Michael P. Lux, Esq.

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There are about a half-dozen significant cases filed to stop President Joe Biden’s plan for up to $20,000 in student loan forgiveness per borrower.

One judge has struck down the plan and one court of appeals put things on hold. However, the Supreme Court has sided with Biden twice now.

Many borrowers are confused about what to do next with their federal student loans.

When will all these cases get resolved, and what will happen?

The legal procedure and the facts at issue get complicated quickly. If there is reader interest, I can write an article explaining how concepts like standing, separation of powers, injunctions, and appeals work.

For now, the critical detail is that the legal limbo could take months or years before a final resolution.

As for the outcome, nothing is certain. There is a very real possibility that that program ultimately gets shut down. There is also a very real possibility that it survives. Calling this situation a coin-flip is a reasonable assessment.

The government case is strong on the procedural issue of standing, which could lead to a win for Biden. However, if any of the lawsuits can overcome the standing hurdle, the substance of the case probably favors the plaintiffs trying to put a stop to things.

Borrowers need to consider both possible outcomes.

Don’t Assume Forgiveness is Happening

Some people already have plans for their $10,000 of loan forgiveness. This level of optimism is unwarranted. That said, all hope is not lost.

If the application goes live again, it is a good idea to apply right away. However, applying for forgiveness and getting it are two very different things.

If the one-time forgiveness program happens, millions of borrowers will have their entire balance erased. If you fall into this category, it is a good idea to consider your options once the debt is forgiven. Saving money for retirement or dealing with other debts are great ideas.

However, it is also essential to consider the possibility of it not happening. If the courts shut down forgiveness, what will you do? Have you figured out what repayment plan is best? Will you pursue one of the other options for forgiveness?

Sherpa Tip: When the repayment restart officially begins, borrowers will struggle to get answers from overwhelmed loan servicers. Expect long hold times and rushed customer service representatives.

If possible, figure out your strategy before payments resume.

Helping the Case

When legislation is pending regarding student loans, borrowers can make a difference by calling or writing to their legislators.

With the lawsuits, borrowers can’t help the cause. We can’t assist Department of Justice attorneys, and the judges on the cases don’t want input from the general public.

Sadly, this is a situation where we just have to sit and wait for a resolution.

Extending the Payment Pause

As a result of the loan cancellation litigation, the Biden administration is considering extending the student loan payment and interest pause.

An extension of the pandemic relief would be a massive break for many borrowers.

At a minimum, borrowers could use a high-yield savings account to set aside money earmarked for student loans.

Additionally, borrowers could use any further extension to build up an emergency fund or save for a major purchase, like a house.

The recent track record of the Biden administration shows that any decision on a payment pause extension will come at the last minute. It could be late December before we know whether or not the student loan relief will extend into 2023.

About the Author

Student loan expert Michael Lux is a licensed attorney and the founder of The Student Loan Sherpa. He has helped borrowers navigate life with student debt since 2013.

Insight from Michael has been featured in US News & World Report, Forbes, The Wall Street Journal, and numerous other online and print publications.

Michael is available for speaking engagements and to respond to press inquiries.

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