Biden's student loan forgiveness plan heads to the Supreme Court. How that affects the payment pause

Most recently, amid legal challenges to the Biden administration's student loan forgiveness plan, the government told borrowers they'd get even more time. But the timing it gave wasn't as straightforward as it was with previous extensions.

Here's what borrowers need to know.

In August 2022, President Joe Biden promised to cancel up to $20,000 of student loan debt for tens of millions of Americans, but Republicans and conservatives quickly filed a number of lawsuits against his plan, forcing the administration to close its application portal in early November.

As a result of those challenges, the Education Department announced another extension of the repayment pause in late November.

It said federal student loan bills will be due again 60 days after the litigation over its student loan forgiveness plan resolves and it's able to start wiping out the debt. But the Department added that if the Biden administration is still defending its policy in the courts by the end of June, or if it's unable to move forward with forgiving student debt by then, the payments will pick up at the end of August.

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The Supreme Court will begin to hear oral arguments over Biden's plan at the end of February.

When payments could resume depends in part on when the justices reach their decision, said higher education expert Mark Kantrowitz.

"If the court issues a ruling a few weeks after the Feb. 28 hearing, repayment could restart in May or June," Kantrowitz said. "If they wait until the end of the term, when they go on recess, in June or July, then there would be an August or September restart."

It's a time of uncertainty for the federal student loan system.

With Biden's forgiveness plan up in the air, borrowers may be unsure what they owe. Throughout the pandemic, there have been a lot of changes to the companies that service federal student loans. And then there's the fact that after three years without payments, millions of Americans have simply become accustomed to life without student debt bills.

"These student loan borrowers had the reasonable expectation and belief that they would not have to make additional payments on their federal student loans," Education Department Undersecretary James Kvaal said in a November court filing. "This belief may well stop them from making payments even if the Department is prevented from effectuating debt relief.

"Unless the Department is allowed to provide one-time student loan debt relief," he went on, "we expect this group of borrowers to have higher loan default rates due to the ongoing confusion about what they owe."

Considering that the U.S. Department of Education has already extended the payment pause roughly eight times, it's possible borrowers could get more time still, Kantrowitz said.

"There will always be an excuse if they want a reason for another extension," he said. "The most likely reasons could include a new worrisome Covid-19 mutation or economic distress."

The U.S. government has extraordinary collection powers on federal debts and it can seize borrowers' tax refunds, wages and Social Security checks if they fall behind on their student loans.

During the extended payment pause, however, the Education Department also says it won't resume collection activity.

Borrowers in default on their student loans should also look into the recently announced "Fresh Start" initiative, in which they'll have the opportunity to return to a current status.

With headlines warning of a possible recession and layoffs picking up in some sectors, experts recommend that borrowers try to salt away the money they'd usually put toward their student debt each month.

Certain banks and online savings accounts have been upping their interest rates, and it's worth looking around for the best deal available. Consumers will just want to make sure any account they put their savings in is insured by the Federal Deposit Insurance Corp., meaning up to $250,000 of the deposit is protected from loss.

And while interest rates on federal student loans are at zero, it's also a good time to make progress paying down more expensive debt, experts say.

The average interest rate on credit cards is currently more than 20%.