The Supreme Court on Friday morning announced its ruling that the Education Department (ED) does not have the power to forgive student debt en masse, thus canceling President Biden’s plan for widespread federal student loan relief.
The program, which was first announced last August, aimed to grant up to $10,000 to $20,000 in student loan forgiveness for borrowers whose annual income totals less than $125,000. An estimated 40 million Americans would have qualified for some forgiveness, half of whom would have seen their federal student debt balance forgiven in full. In response to the Court’s decision, Biden said his administration would seek other ways to instate a large-scale forgiveness program, but cautioned that doing so would be a lengthy process.
So, with the door closed on widespread relief for the foreseeable future, the return of monthly federal student loan payments — which Biden confirmed will take place this fall, after more than three years on hold — is especially daunting, and borrowers need help more than ever.
Here’s what to expect as monthly payments resume — and what it all means for the workplace.
For many, the return of student loan payments will have a profound impact on both day-to-day budgeting and long-term mobility and security. After all, the average monthly student loan bill is now estimated at more than $500.
Between record-high housing costs, a shaky job market, and other ongoing impacts of the pandemic, many borrowers’ spending and saving priorities have changed dramatically since the student loan moratorium first began in March 2020. Stress and anxiety will surge as borrowers scramble to find the cash to cover their payments — but two emerging resources, announced by President Biden shortly after the court’s decision was made public, offer hopeful outcomes.
First, Biden announced that his administration will expedite the rollout of its previously announced income-driven repayment (IDR) plan, Saving on a Valuable Education (SAVE), to the end of this summer before payments resume, and that borrowers who are already enrolled in or sign up for the Revised Pay as You Earn (REPAYE) will be automatically enrolled in the SAVE plan once it is launched. Under the SAVE plan, enrollees’ monthly payment amount will be calculated at 5% of their discretionary income (half of what is typically offered by other IDR plans), borrowers who remain in good standing will not accrue interest, and borrowers whose original loan balances were under $12,000 will be eligible to have remaining debt forgiven after ten years (instead of 20, as is required under other IDR plans).
Second, the President also shared that ED will instate an “on-ramp” period for the first twelve months following the return to repayment, during which time borrowers who miss payments will not be considered to be in default, reported to credit bureaus, or sent to a collection agency if they cannot make their monthly payments.
Confusion and chaos
Student debt is notoriously difficult to navigate — and the return to repayment will likely make it worse.
For starters, many borrowers feel wronged by SCOTUS’s ruling on forgiveness, and after multiple (often last-minute) extensions, many may not even believe that payments are actually resuming. But even those who want to start preparing for the return to repayment will encounter chaos and confusion along the way, especially when it comes to finding reliable information about other paths to forgiveness and strategies for making repayment more affordable (such as the upcoming account adjustments, Public Service Loan Forgiveness, and ED’s plans for a new Income-Driven Repayment plan).
Loan servicer headaches
Federal student loan servicing companies (which manage collections and billing on behalf of ED) have historically struggled to keep up during periods of high traffic.
With millions of users flocking to servicing sites for the first time in over three years, volume is expected to reach an all-time high in the coming months — and borrowers should expect long support wait times and website crashes. Even a task as simple as recovering a lost password could prove challenging due to outdated borrower contact info records and the fact that millions of borrowers were reassigned to new servicers during the moratorium period.
What it means for the workplace
Personal money worries have long carried over into the workplace: a 2019 study found that US employers lose $500B annually from the toll that employees’ financial stress takes on productivity, engagement, and retention. Without intervention, the return to repayment is sure to exacerbate these negative impacts — and the downstream costs for employers.
That’s exactly why now is the time for employers to take action. Candidly is ready to help them meet this critical moment with employee benefit solutions including:
- Repayment plan optimization: Candidly makes it easy to find, compare, and enroll in Income-Driven Repayment programs (including ED’s proposed new plan, once launched), which reduces the average qualified user’s student loan payment by $358 per month.
- Student loan repayment contributions and retirement matching: We help employers design and facilitate tax-optimized direct student loan repayment contribution programs and SECURE Act 2.0-compliant student loan retirement match programs.
- Coaching services and exclusive content: Amid the chaos and confusion of the return to repayment, our one-on-one virtual coaching services and exclusive, expert-crafted content position employers to be a trusted source of clarity for their workers.
- Public Service Loan Forgiveness: Help eligible employees find other paths to forgiveness. Our automated PSLF solution triples the number of employees who apply for PSLF, with 80% of those applications coming from first-time applicants.