Biden's failed student loans forgiveness leaves some borrowers scrambling: survey

Some borrowers that would have qualified for federal student loan forgiveness spent their savings and are now unprepared to resume student loan payments, a recent survey said. (iStock)

President Joe Biden's failed student loan forgiveness plan has put some student loan borrowers that were counting on those savings in a real bind, a recent survey said.

Roughly half of the 75% of borrowers confident that they would have their student debt forgiven under the blocked plan spent money they otherwise would not have, the Intelligent.com survey said.

The U.S. Supreme Court blocked President Joe Biden's student loan forgiveness plan in late June. The plan would have canceled up to $10,000 in federal loans per borrower making less than $125,000 a year (couples making less than $250,000) and up to $20,000 per borrower for those who used Pell Grants in college, eliminating about $441 billion in outstanding student debt.

The plan was poised to mainly impact borrowers making less than $75,000 a year, and none of it would have gone to people making more than $125,000, according to the White House.

"The Supreme Court decision is a cold shower for those who had their hopes pinned on a $10,000 relief," Billpin.com Founder James Allen said in a statement. "It's like waiting for a tax refund only to find out the IRS made a mistake. The impact? Well, it's back to square one, folks. The dream of a financial breather has evaporated."

If you hold private student loans, you could lower your monthly payments by refinancing to a lower interest rate. Visit Credible to speak with an expert and get your questions answered.

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Borrowers not ready to resume payments

The debt ceiling deal officially ended federal student loan forbearance, and borrowers can expect to resume payments on student loans in October, with interest on these loans will begin accruing in September.

More than half (58%) of respondents with student debt said they were not prepared for payments to resume later this year, the survey said. And 27% said they were likely to refuse to pay the $10,000 in relief they thought they would receive.

Roughly 34% to 76% of borrowers will likely miss their first required federal student loan payment, according to a recent VantageScore report. The average credit score could take a hit of between one and 9 points as a result.

"This is bigger than a Federal Reserve interest rate hike, and the reason for that is that it directly impacts consumers," VantageScore President and CEO Silvio Tavares told Bloomberg TV. "Lots of consumers are going to have to pay an additional monthly bill, and in addition to that, it's going to impact their credit scores."

If you want to pay down your private student loan debt, a refinance could help you lower your interest rate and monthly payment. To see if this is the right option for you, contact Credible to speak to a student loan expert and get all of your questions answered.

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Biden outlines alternatives to help student borrowers

Borrowers could yet see some of their federal student debt forgiven, which hinges on another plan modeled on the Higher Education Act (HEA). HEA includes a provision that allows the Secretary of Education to compromise, waive or release federal student loans.

So far, which loan holders will qualify and how much of their debt will be forgiven remains to be seen. Biden has said that the plan is legally sound but will take longer to bring relief to many borrowers.

Borrowers struggling to make payments can use the administration's newly announced 12-month on-ramp to repay. The option allows borrowers to defer payments without the risk of defaulting or hurting their credit scores. However, interest charges resume in September and will build, regardless of if borrowers make their payments.

Borrowers with private student loans could still find relief by refinancing to lower their monthly payments. Visit Credible to find your personalized interest rate without affecting your credit score.

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