What Will Happen to Your Student Loans Now

Now that the Supreme Court has blocked President Biden’s student debt cancellation proposal, people with loan balances have two things to watch in the short term.

First, the pandemic-related pause on monthly payments will end by Sept. 1, with the first payment due in October.

Then, there is the glimmer of hope: The Education Department is trying to put in place a new system of calculating the size of those monthly payments. That could lower the payments for many people. It could also cancel the debt sooner, under a system that’s separate from the one that the Supreme Court disallowed on Friday.

We’ve published a guide to the payment restart here. The Education Department is likely to provide more details soon. “We urge the department to share any plans as soon as possible so financial aid practitioners are well prepared to assist students,” said Justin Draeger, chief executive of the National Association of Student Financial Aid Administrators.

Student loan experts expect the administration to provide a safety net for borrowers, giving them extra time — a grace period of at least three months — to send in their payments. So if a borrower could not make a payment within that period, a late payment would not be reported to credit reporting bureaus. But interest would still begin to accrue in September, leaving borrowers even deeper in debt.

There are steps borrowers can take now to avoid that situation altogether. Most borrowers who are worried they will not be able to make their payments in October can try to enroll in an income-driven repayment plan, in which payments are tied to income and family size.

The Biden administration’s proposed plan would revise the existing income-driven plan known as REPAYE, and could reduce the size of monthly payments by more than half for millions of borrowers. The Education Department released the proposal in January, and a final rule — which may have been tweaked from the initial proposal — was sent to the White House for review on May 23.

That means the final version of the plan is closer to being published, which could happen in the coming weeks (You can find our guide on the initial proposal here).

But even after the final plan is released, getting it up and running by October will be challenging. Now that the debt cancellation proposal has been blocked, the Biden administration is expected to try to expedite the process and execute the plan in phases. It’s still unclear exactly how close to ready the plan will be — and it’s also possible that lawsuits could emerge to try to block it.