The latest extension on the federal student loan payment and interest pause was undoubtedly a win for borrowers, but new rules are causing some confusion.
The big question for many borrowers should have an easy answer. When do I have to make payments again?
Sadly, there isn’t a simple answer. Numerous complicating factors are at play: The pause might end on June 30th. It might end before that date due to a newly-filed lawsuit.
When the pause ends, payments don’t actually begin. There could be another extension.
If you are a borrower trying to do some financial planning, this confusion complicates matters.
The Supreme Court Will Decide the Restart Date
After numerous payment pause extensions from the Biden and Trump administrations, we now find ourselves in a situation where the Supreme Court will decide when payments resume… kind of.
When the courts held up Biden’s One-Time Forgiveness program, the administration extended the payment and interest pause. They wanted borrowers to have certainty on the forgiveness program before the bills came due.
Previous extensions had a specific end date. This time, the payment pause ends when the Supreme Court rules on the one-time forgiveness plan or on June 30th… whichever comes first.
The Timing of the Supreme Court’s Ruling
We know oral arguments in the one-time forgiveness case will happen on February 28th.
Unfortunately, this nugget of information doesn’t tell us when the Supreme Court will issue its ruling. After the hearing, the justices will discuss the case and vote on the decision. At that point, justices will be selected to draft majority and, if necessary, minority opinions. This process can take months to complete.
Based on prior timelines from other court sessions, we can expect a decision from the Supreme Court by late June. The Biden administration selecting June 30th does not appear to be a coincidence.
It is certainly possible that the court expedites a ruling due to the case’s significance. However, the justices move at their own pace, and all cases that reach the Supreme Court tend to be significant.
Sherpa Tip: Don’t assume the outcome of the student loan forgiveness case. Many borrowers fear the Biden administration will lose in front of a right-leaning Supreme Court.
However, the significance of this case goes far beyond student loans. At the core of the case is the question of who is allowed to bring a lawsuit against the government. Ruling against the Biden administration could open the door for many new lawsuits, which is something that will likely concern the Supreme Court.
The SoFi Lawsuit and Restart Timing
Student loan refinance lender SoFi recently filed a lawsuit with the goal of ending the payment and interest pause.
The timing of the SoFi lawsuit is curious for many different reasons, but from the borrower perspective, it appears unlikely to have an immediate impact. Litigation is notoriously slow, and with the pause scheduled to end in just a few months, it seems unlikely that the lawsuit will cause any signficant changes.
However, there is no way to be certain when it comes to prediciting what might happen in a lawsuit. A judge could issue a surprise order mandating an imemdiate restart to payment.
Sherpa Thought: If I had to guess, I’d say SoFi’s primary motivation behind the lawsuit is to prevent another extension. The timing of the lawsuit makes it hard for SoFi to impact the current schedule for the restart, but the lawsuit could block a future extension.
A Two-Month Warning for Borrowers and Servicers
The end of the student loan payment pause and the date payments resume are different dates. Payments will resume a full two months after the pause ends.
On the surface, this plan sounds silly. If borrowers are not required to make payments, then payments are still paused.
The logical gymnastics are necessary in this case because the government has granted so many extensions. In fact, two of the previous extensions were called “final” extensions. They don’t have much credibility when drawing a line in the sand.
By putting a two-month gap in between the pause ending and payments starting, borrowers and servicers should get plenty of notice that the Covid relief is actually ending.
September 1st is the Best Guess for Payments to Resume
Based on their track record, the Supreme Court will probably rule on forgiveness in mid-to-late June. Even if they haven’t ruled, the pause is scheduled to end on June 30th.
If we jump ahead two months from our Supreme Court ruling projection, we are at August 30th.
However, it is worth noting that all borrowers won’t have payments due on the same day. Our payment deadlines are staggered throughout the month. This policy will continue in the restart. Thus, if your monthly payment was due on the 10th, your first payment deadline will likely be September 10th.
It’s worth noting that September 1st is a best guess and nothing more. If the Supreme Court issues a ruling on June 15th, borrowers will have bills due between August 15th and September 15th, depending on their billing cycle.
If the Supreme Court decides to expedite things, they may issue their judgment in April or May. In that case, payments will resume significantly earlier.
The Odds of Another Extension
After seeing the Biden administration issue multiple “final” extensions that were not final, I’m hesitant to say it won’t happen again.
That said, I’d be astonished if there was another. The SoFi lawsuit may erase Biden’s ability to extend the pause any further.
The timing of the restart is a political calculation more than anything else. If another extension is granted, it moves the restart closer to the 2024 election cycle. Biden and the Democrats don’t want voters headed to the polls angry about the repayment restart. If they restart things by September 2023, voters will likely have something more recent to be mad about.
As a federal student loan borrower, I expect my budget to feel tighter in September.
Steps to Take Right Now
A continued reprieve from student loan payments is excellent, but borrowers cannot afford to do nothing during this time.
Here are a few actions that should happen long before the restart:
- Investigate the IDR Count Update – Many borrowers will move significantly closer to loan forgiveness due to a one-time update of IDR payments. However, some borrowers need to act before the May deadline.
- Ask your servicer questions now – Calling your loan servicer is rarely a pleasant experience, but things will be horrible when bills get mailed out during the restart. Resolving repayment plan and forgiveness questions today will save you a ton of time in the future.
- Update your contact info – Have you moved in the last three years? Make sure bills and notices are sent to your current address. Servicers have zero sympathy for borrowers who were unaware of a bill due date. Updating contact info might seem like you are doing your servicer a favor, but in reality, you are protecting yourself.