Student Loan Borrowers Are Grappling With Profound Uncertainty

The student loan landscape is as uncertain as ever, and millions of borrowers are facing unprecedented uncertainty about student loan forgiveness, loan repayment and the availability of new relief. 

Here’s what’s going on.

Uncertainty over Biden's student loan forgiveness initiative

The Supreme Court held a riveting hearing last month to consider two legal challenges that will determine the fate of President Joe Biden’s signature student loan forgiveness initiative. The plan would eliminate $10,000 or $20,000 in federal student loan debt for tens of millions of borrowers. An astounding 26 million borrowers had already applied — and over half of those were approved — before federal courts blocked the program in response to lawsuits challenging the legality of the initiative. 

The Supreme Court hearing provided clues about how the nine justices might be leaning, but the outcome of the challenges are far from clear. A majority on the court expressed skepticism about the program’s legality, and while that probably was concerning for the administration, it doesn’t necessarily mean that the plan is doomed. 

Standing could be a deciding factor

The cases could be decided on the issue of standing — the legal concept that for a party to file a suit in federal court, they must be able to demonstrate that the challenged program or policy would directly result in a concrete harm or injury. Four justices on the court — just short of a majority — seemed deeply skeptical that the challengers had standing. 

Several other justices said very little on the issue of standing, and if just one of them joins the other four, the challenges could be tossed, allowing Biden's program to proceed.

But there is simply no way to know how these cases will turn out. A decision is expected to be issued in June, so millions of borrowers will likely have another few months of uncertainty.

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Uncertainty over student loan pause

Biden extended the student loan pause yet again in response to the legal battle before the Supreme Court. The pause, which is about to complete its third year, has stopped student loan payments, frozen interest and suspended collections efforts since March 2020.

But borrowers don’t have a firm end date on Biden’s most recent extension of the student loan pause. According to the Education Department, “Payments will resume 60 days after the Supreme Court announces its decision. If it has not made a decision or resolved the litigation by June 30, payments will resume 60 days after that.” 

So payments could resume as late as the end of August 2023, but they could also continue sooner than that, depending on when the Supreme Court issues its ruling on Biden's student loan forgiveness initiative. 

Could the pause get another extension?

It's also possible that Biden could extend the student loan pause yet again. There have now been multiple instances where the Education Department — both under the Trump administration and the Biden administration — waited until nearly the last moment to announce another extension. 

During the Supreme Court oral arguments last week, there were hints by Solicitor General Elizabeth Prelogar that the government could extend the pause (again). However, with the Biden administration set to end the Covid-19 emergency in May, the department may lose the central justification it has relied on for prior extensions.

A new lawsuit has emerged

A new lawsuit filed earlier this week by SoFi, a private student loan refinancing company, is complicating matters even further. SoFi is suing the Biden administration, claiming that the latest extension of the student loan pause is illegal and should be stopped or narrowed. 

The Education Department disputes the central claims in the lawsuit and maintains that the latest extension is legal. But if a federal court agrees with SoFi, borrowers could be thrown back into repayment even sooner than anticipated. 

Uncertainty over IDR account adjustment

The Education Department is in the early stages of rolling out the IDR Account Adjustment, an initiative that may provide significant retroactive credit towards student loan forgiveness under Income Driven Repayment (IDR) plans. 

Under the initiative, the department can credit past repayment periods under any repayment plan, as well as certain periods of deferment or forbearance, towards a borrower's IDR repayment term, even if they have not been repaying their loans under an IDR plan. This has the potential to dramatically accelerate a borrower's progress towards student loan forgiveness on IDR plans’ 20 or 25-year terms, and some borrowers may receive enough credit to get their loans completely discharged. 

Borrowers have a lot of (unanswered) questions

But the Education Department has provided limited guidance so far, leaving many questions unanswered. For example, there is no official guidance about how the department will handle loan consolidations containing individual loans that have different repayment histories. 

Several department officials have provided more detailed information through informal channels, but the lack of official published guidance has left many borrowers needing clarification.

Timing of implementation is uncertain

Complicating matters further is the program’s implementation. Initially, the Education Department had anticipated completion by January. But that has not happened.

The current published guidance states, “Based on the newly eligible months from the one-time account adjustment, borrowers who have reached 240 or 300 months’ (as applicable) worth of payments for IDR forgiveness or 120 months of PSLF will begin to see their loans forgiven in spring 2023. All other borrowers will see their accounts update in summer 2023.”

However, even this timeline may change. The Office of Federal Student Aid is struggling under the weight of trying to implement multiple Biden administration initiatives simultaneously. Still, the division was not provided any additional funding by Congress in the most recently-passed budget. As a result, advocates expect additional delays to the IDR Account Adjustment's implementation. But how much of a delay is anybody's guess at this point. 

Uncertainty over changes to Income Driven Repayment

Earlier this year, the Biden administration announced a proposed overhaul of Revised Pay As You Earn (REPAYE), an income-driven repayment (IDR) plan that can result in eventual loan forgiveness. The proposed changes would reduce monthly payments under the plan (particularly for borrowers with undergraduate student loan debt), shorten the timeline for loan forgiveness for smaller initial undergraduate loan balances and eliminate excess interest accrual and negative amortization. 

Related: Student Loan Forgiveness New REPAYE Calculator

The overhaul would also allow some periods of deferment and forbearance to count towards a borrower's repayment term, potentially accelerating progress toward eventual student loan forgiveness. And it would enable married borrowers who file taxes separately to exclude spousal income from consideration, bringing REPAYE into line with other IDR plans such as Pay As You Earn (PAYE) and Income Based Repayment (IBR). 

But unlike other regulatory changes set to take effect this July, the Education Department has provided no timeline for implementing the new changes. As a result, while the overhauled REPAYE program may help many borrowers, it is still being determined precisely when the new benefits will become available.