Kelsey Lesco, Colorado's student loan ombudsperson, said the 796,900 Coloradans with federal student loan debt who are wondering what to do following the U.S. Supreme Court's rejection of President Joe Biden's plan to cancel or reduce federal student debt for millions should start by following a few simple steps.
1. Borrowers should identify who their student loan servicers are, Lesco said. During the pandemic when many student loan payment plans were paused, Lesco said about 10 million borrowers had their loans transferred to a new servicer. To figure out which servicer their loans belong to, borrowers can go to studentaid.gov.
2. Make sure your contact information is up to date with your borrower and the Federal Student Aid Office of the U.S. Department of Education. Borrowers can expect updates from the federal office and the loan servicer with important information regarding loans, so Lesco said it's crucial to provide correct mailing or email addresses.
3. If borrowers have questions, including how to turn automatic payments back on or whether they need to after the payment pause, those queries should be directed to the loan servicer. The colleges and universities where people incurred their debt most likely will direct people to contact their loan servicer with questions, Lesco said.
4. Borrowers should figure out what their payment amount is going to be. For federal student loans, Lesco said there are options if payments aren't affordable, including income-driven repayment plans or, potentially, going into deferment or forbearance. While interest may accrue in deferment or forbearance, Lesco said those are often better options than defaulting on loans.
5. Loan repayments are set to resume in October, but interest will start accruing in September, according to the U.S. Department of Education. Payments were paused at the start of the pandemic more than three years ago.
Lesco urged borrowers to get their loan affairs in order sooner rather than later because she anticipates lengthy wait times for customer service as providers are inundated with calls and requests for assistance.
"This could be a very high-risk issue for consumers or one where consumers are prepared for it," Lesco said. "It will be a challenge for some people to go into repayment having that extra bill, so we are encouraging people to be as prepared as they can."
Lesco's office is also prepared to talk with Coloradans who have questions or concerns about their student loans. Contact information for state student loan services can be found on the Colorado attorney general's website.
The debt forgiveness program Biden pitched would have wiped out $10,000 in student debt for borrowers earning less than $125,000 or households with less than $250,000 in income. Pell Grant recipients, borrowers who demonstrated more financial need, would have had $20,000 in student debt canceled.
The 6-3 decision by the U.S. Supreme Court said the Biden administration overstepped its authority with the plan.
In response to the court's ruling, Biden announced Friday that his administration will begin working toward an alternative path to debt relief under the Higher Education Act.
Additionally, the Education Department is creating a 12-month "on-ramp" to repayment from October to September 2024, making it so "financially vulnerable" borrowers who miss monthly payments during this time won't be considered delinquent, reported to credit bureaus, placed in default or referred to debt collection, the department said.
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