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Biden’s Student Loan Forgiveness Plan Blocked: What Now?

With President Joe Biden’s one-time student loan forgiveness plan pending in two separate federal courts, borrowers are left with many questions about the future of their student loans. Big deal: What do they do when they request refunds for payments made during the pandemic?

COVID-19 relief allows borrowers who defaulted on their federal student loans during the health crisis to claim the money back if they need it. And when Biden announced his plan to forgive $10,000 to $20,000 per borrower, many who had already paid their balances below that limit applied for refunds.

Now, with the fate of the program up in the air due to a series of legal challenges, borrowers are wondering whether they should use the credit, roll it right into their debt, or just hold onto it and see what happens. Some are still waiting for refunds they requested when the amnesty plan was first announced, adding to the confusion.

“On the one hand, no one knows for sure where these current legal challenges will lead, and I don’t think anyone should spend time panicking about something they can’t control,” said Jacob Channel, senior economist at LendingTree. “On the other hand, the plan looks like it’s going to be an uphill battle because many of the country’s courts, especially the Supreme Court, are conservative.”

Nonetheless, if you received student loan payments during the pandemic because you expected Biden’s plan to forgive the debt, Channel advises you to keep them for the time being. Keep it in a savings account—better yet, a high-interest account—until the future of debt relief is clearer.

“Because government student loans don’t accrue interest until repayments start in January, you don’t have to worry about spending your loan money right now,” he says. “Try to refrain from using the money returned to you, at least until we know for sure where the forgiveness is.”
If Biden’s forgiveness plan is ultimately blocked, you can put the returned money directly back into your student loans.

So far, the widespread amnesty plan has been blocked by two courts. At least one of the cases is likely to end up in the Supreme Court, meaning it could be weeks or months before the borrower learns the fate of the debt relief.

With federal loan payments scheduled to resume in January 2023, some borrowers are calling for that date to be pushed back, at least until a final decision is made.

“In the end, I would say people should hope for the best and prepare for the worst,” says Channel. “If nothing else, it means you should save as much as possible and plan to resume payments in January.”f

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