[Editor's Note: With breaking news from the US Supreme Court on Friday morning, the White Coat Investor's student loan expert has filed a special report.]
President Joe Biden’s executive action for student loan forgiveness was blocked by the Supreme Court on Friday, June 30. Two lawsuits were filed to SCOTUS back in February 2023 and have been hotly debated ever since: Department of Education v Brown and Biden, President of the United States v Nebraska et al. The first case lacked standing, and the second was ruled in favor of blocking forgiveness 6-3. The six conservative Supreme Court justices voted in favor of blocking Biden's action; the three liberal justices voted against it.
It was estimated that 25 million-plus borrowers would have been eligible for immediate student loan forgiveness of at least $10,000 for those making less than $125,000. The cost was anticipated to be around $400 billion. This is a tough blow to Biden and his constituents who ran on a promise of student loan forgiveness. In addition, many borrowers were hoping this forgiveness would come to fruition and lighten their student debt load (though it wouldn't have done much for most white coat investors).
With this case now in the rearview mirror, will there be more student loan initiatives and more legal battles? If the future is anything like the past, most certainly. Here are a few considerations as we look forward.
An Effort to Impede or Reverse Recent Student Loan Initiatives
Republicans in the House of Representatives Committee on Education and the Workforce recently used the Congressional Review Act to try to impede a variety of student loan pause-era initiatives. Aside from the flagship $10,000-$20,000 initiative that was just blocked, they tried to have loans that were discharged under the PSLF waiver reinstated to borrowers and to stop changes to income-driven plans such as New REPAYE. The Congressional Review Act is a tool Congress can use to change final rulings issued by a federal agency.
The legislation to roll back recent student loan initiatives made it through the House and Senate with a slim majority. However, Biden vetoed the proposal on June 7. With the veto in place, there needed to be a two-thirds majority in the House and Senate to overrule him. The 221-206 vote fell far short of a two-thirds majority.
The Student Loan Moratorium Ends in September
The student loan moratorium began in March 2020 when President Donald Trump paused payments and interest. The moratorium was linked to the COVID pandemic and the national health emergency, which ended on May 11, 2023. Prior to that date, the president could issue additional extensions to the loan moratorium via executive action.
Many believed student loans would be paused again if the student loan forgiveness executive order was unsuccessful. However, The Fiscal Responsibility Act (aka the debt ceiling bill) officially put an end to the three-year loan moratorium in June. For the first time in more than three years, interest on federal student loans begins in September 2023 and payments will resume in October.
More information here:
Income Certification with Student Loan Payments Resuming
Income certification will not immediately be required of borrowers if they are already in an Income-Driven Repayment plan (IDR). Traditionally, you are required to submit recent income documentation annually to stay in IDR. Income certification, though, has been halted since March 2020. The next time you will need to certify income is, at the earliest, six months from when payments resume in October. But imagine the logistical nightmare of 45 million borrowers moving into repayment for the first time in more than three years. It’s going to take some time before you receive your next certification date from your servicer.
If you are interested in IDR but not in one yet, you would need to enroll before payments start this year. If you are planning on changing plans or consolidating your student loans, this would also require you to submit a recent tax return or pay stub, potentially triggering an increase in payment for those borrowers who are earning more money now.
The Biden Administration's Student Loan Secret Weapon: New REPAYE
The Biden administration announced in January that IDR plans were being overhauled. The final decision on New REPAYE was set for July 1, 2023. However, there has been little conversation thus far on the timing or if the regulations of the proposed repayment plan have changed. We expect an update to happen by the end of the year, and we will watch closely if there is any legal measure to delay it.
The repayment program overhaul consists of REPAYE getting a facelift (aka New REPAYE) and the phasing out of PAYE and ICR for all except parent borrowers. The idea was to make REPAYE the most cost-effective option for all borrowers in IDR plans while eliminating the tricky decision of selecting the optimal repayment program. However, it’s not as easy as it may appear with New REPAYE being the de-facto repayment plan for all borrowers in IDR.
Prior to the implementation of New REPAYE and the resumption of payments, everyone in IDR needs to assess if they should make changes to their existing repayment plan. It seems that many people are jumping on the New REPAYE boat. If you’ve only borrowed for undergraduate, it's the right choice. For those who have graduate or professional degree loans, the option of New REPAYE vs. an alternative IDR plan becomes more murky. Many would benefit from the proposed larger interest subsidy, the lower payments, and the ability to exclude spousal income through filing as a couple separately (similar to IBR and PAYE). However, there are some borrowers who make more than what they owe that could be better off staying in PAYE or IBR.
More information here:
Refinancing Student Loans in a Higher Rate Environment
It comes as no surprise that private refinancing has lost some of its value as the Federal Reserve has tried to combat inflation over the past two years by raising interest rates. Refinancing federal student loans has been uncommon during the loan moratorium because most have had 0% interest rates. Refinancing will become more regular for borrowers now that the interest freeze is ending.
Pre-COVID, private refinancing was an easy decision if you were no longer pursuing a forgiveness program such as Public Service Loan Forgiveness. At the time, you could drop your 7%-8% interest rates from medical school down to 2%-4% and save a ton of money in interest. But rates have increased about 4% since their all-time lows, and you would be hard-pressed to find any student loan interest rate quotes from private lenders lower than 5% these days. The decision to refinance is less likely now that you can no longer cut your rate in half.
Does bringing your rate down from 7% to 6% through refinancing still make sense even though you would no longer be eligible for federal benefits, such as
- Income-driven repayment
- Federal loan forgiveness programs (PSLF, IDR forgiveness)
- Death and disability discharge
For some borrowers, it will not. And for others, it will. Really, it comes down to whether you pursue forgiveness. If you're not sure one way or the other, it's best to keep them federal until you make up your mind. For private student loans, anytime you can receive a lower rate by refinancing, you should do it. If you took out private student loans to pay for school, they usually have higher interest rates than federal loans. That leads most to consider private refinancing when they begin their intern year and again when their income jumps as an attending.
More information here:
The student loan forgiveness Supreme Court case is a landmark decision, and it impacts tens of millions of borrowers who were expecting and/or hoping for forgiveness. Student loan forgiveness in the $10,000-$20,000 variety is not happening at the moment.
Now is a great time to make a plan on how you’ll pay down your student debt. Whether it’s selecting a repayment plan, pursuing loan forgiveness, or private refinancing, it’s a fantastic idea to have a student loan pro on your side.
At StudentLoanAdvice.com, our team of student loan professionals has been guiding white coat investors for years on how to navigate loan repayment and save money on their student loans. We will help you understand all your options and win on your student loans. Schedule an appointment with a student loan pro today.
What do you think about the Supreme Court's decision? Does it affect you at all? Should the government try again with student loan forgiveness? Comment below!