Millions of borrowers may learn soon whether they could receive up to $20,000 in debt relief under President Joe Biden's student loan forgiveness program.
The fate of the unprecedented debt cancellation program lies with the Supreme Court, which is expected to decide to either uphold or strike down the proposal in late June or early July.
The student loan forgiveness program, which Biden announced last August, has been on hold due to legal challenges. No student loan debt has been canceled, despite the fact that the government approved 16 million applications eligible for relief last year.
A group of Republican-led states and other conservative groups took the Biden administration to court over the program, claiming that the executive branch does not have the power to so broadly cancel student debt in the proposed manner.
Critics also point out that the one-time student loan forgiveness program does nothing to address the cost of college for future students and could even lead to an increase in tuition. Some Democrats joined Republicans in voting for a bill to block the program. Both the Senate and the House passed the measure, but Biden vetoed the bill in early June.
The forgiveness program, which is estimated to cost about $400 billion, would fulfill Biden's campaign promise to cancel some student loan debt and would delight progressives, as well as put some borrowers in a better financial position when the pause on payments and interest accrual expires later this year.
Most federal student loans have been frozen since March 2020 when a pause meant to protect borrowers struggling financially due to the Covid-19 pandemic went into place. Payments will be due starting in October no matter how the Supreme Court rules on the one-time forgiveness program.
Who would be eligible for student loan forgiveness?
The Biden administration has estimated that more than 40 million federal student loan borrowers would qualify for some level of debt cancellation, with roughly 20 million who would have their balance forgiven entirely, if the forgiveness program is allowed to move forward.
But not everyone with a federally held student loan would qualify.
Individual borrowers who made less than $125,000 in either 2020 or 2021 and married couples or heads of households who made less than $250,000 a year could see up to $10,000 of their federal student loan debt forgiven.
If a qualifying borrower also received a federal Pell grant while enrolled in college, the individual could be eligible for up to $20,000 of debt forgiveness.
Pell grants are awarded to millions of low-income students each year, based on factors including their family's size and income and the price charged by their college. These borrowers are also more likely to struggle to repay their student debt and end up in default.
There are a variety of federal student loans. Federal Direct Loans, including subsidized loans, unsubsidized loans, parent PLUS loans and graduate PLUS loans, would be eligible under the program, including those in default.
But federal student loans that are guaranteed by the government but held by private lenders are not eligible unless the borrower applied to consolidate those loans into a Direct Loan by September 29, 2022.
An independent analysis from the Penn Wharton Budget Model found that about two-thirds of the student debt cancellation will go to households making $88,000 a year or less.
How fast could borrowers see debt relief?
If Biden's program gets the green light, some borrowers won't have to do anything to receive debt relief. An estimated 8 million people will receive debt relief automatically because the Department of Education already has their income on file, likely because of financial aid forms or a previously submitted income-driven repayment plan application.
And the Department of Education has kept the 26 million applications it received last fall on file. Those borrowers won't have to apply again, and the government could begin issuing some debt cancellations fairly quickly.
For borrowers who have not applied but think they might be eligible, the application should be available again on the Federal Student Aid website if the Supreme Court allows the program to move forward.
Applicants can expect to receive an email confirmation once their application is successfully submitted. Then, borrowers will be notified by their loan servicer when the debt cancellation has been applied to their account.
When borrowers submit the application, they are required to self-attest that their income is under the eligibility threshold. The Biden administration has said that applicants who are "more likely to exceed the income cutoff" will be required to submit additional information, like a tax transcript.
If the Supreme Court strikes down Biden's student loan forgiveness program, it could be possible for the administration to make some modifications to the policy and try again -- though that process could take months.
When do monthly repayments restart and how can borrowers prepare?
Regardless of how the Supreme Court rules, student loan interest will resume on September 1 and payments will be due starting in October. A law passed in early June that addressees the debt ceiling prohibits another extension of the pause.
Restarting payments for the roughly 44 million federal student loan borrowers will be an unprecedented task.
Many people may be confused about how much they owe, when to pay and how. Millions of borrowers will have a different servicer handling their student loans since the last time they made a payment. Borrowers can log into StudentAid.gov with their FSA ID to confirm their student loan servicer.
Student loan experts recommend that borrowers reach out to their student loan servicer with any questions about their loans as soon as possible, especially if they are interested in enrolling in an income-driven repayment plan. Those plans, which set payments based on income and family size, can lower monthly payments but require borrowers to submit some paperwork.
Borrowers will also have to reauthorize the automatic debit from their accounts to pay their monthly loan bill even if they authorized the withdrawals before the pause began.
The National Association of Student Financial Aid Administrators warns that borrowers may need to have patience when contacting their student loan servicer, which might be overwhelmed with a high volume of inquiries at this time.
"It is possible you may not reach your servicer via phone the first time you call, and you may need to call a few times before getting connected," the group says.
