Biden administration plans three-month ‘safety net period’ for student loan borrowers

As student loan borrowers wait with bated breath for the Supreme Court ruling that will decide whether they will get relief on a large scale, Joe Biden devises a plan to start paying again in the fall.

When the president signed the debt ceiling bill into law earlier this month, it was established that Americans with outstanding federal student loans would have to repay by the end of August.

But government officials, according to multiple reports, have come up with a plan to give borrowers a three-month grace period during which missed payments don’t lead to delinquencies.

However, interest accrual will resume on September 1, 2023 – regardless of whether borrowers resume payments at that time or not.

The transition period – known internally as the “safety net period” – is designed to provide a cushion for borrowers who have not had to pay off their student loans for more than three years due to the COVID-19 pandemic.

Meanwhile, the Supreme Court is preparing to make a decision in the coming days on whether millions of student loan borrowers can prepare for compensation in amounts of up to $10,000 or $20,000.

Biden instructed the Department of Education to create a new rule that would allow for exemption based on the HEROs Act, which was created to provide loan exemptions after the September 11, 2001 terrorist attacks.

But legal challenges allege the administration violated standard rule-making protocol by not allowing a public comment period for the relief. They also argue that the executive cannot bypass Congress in agency appropriations.

Student loans were originally paused by former President Donald Trump at the outbreak of the coronavirus pandemic in March 2020 — and interest rates stopped accruing during the postponement, too.

This was extended multiple times in multi-month increments by both Trump and Biden. That is, until Congress stepped in and wrote into the debt limit increase bill a resumption of payment that began in late August.

Meanwhile, borrowers await a Supreme Court decision in the coming days that will determine whether the way Biden executed his plan to forgive up to $20,000 in student loans per borrower is constitutional.

Deliberations on how to resume repayments after such a long delay has led the administration to take steps to avoid throwing borrowers on credit reports for not starting repayments on time.

The plan ensures that delinquent borrowers will not experience the consequences of default until 2025 at the earliest – well after the 2024 presidential election.

In the coming weeks, the Department of Education also plans to unveil the final version of Biden’s repayment program, which will lead to means-tested repayment for borrowers to reduce monthly fees once payments resume.