Important Developments in Federal Student Loans: Loan Cancellation Blocked, Payment Moratorium Ending, Higher Interest Rates Set for 2023-24
Three significant developments have recently taken place in the world of federal student loans. First, the U.S. Supreme Court has blocked an executive order that aimed to offer loan cancellation to certain borrowers. Second, Congress has set an expiration date for the payment moratorium that has been in effect since March 2020. And finally, new student loan interest rates have been set for the 2023-24 school year. Here are the details of each development.
In August 2022, President Biden signed an executive order canceling up to $10,000 of federal student loan debt for borrowers with incomes below certain limits. This policy directive made its way to the U.S. Supreme Court, which announced its decision on June 30, 2023. The Court ruled that the Biden administration had overstepped its authority and that clear congressional authorization was required for mass debt cancellation. This decision strikes down the executive order and impacts nearly 26 million borrowers who had applied under the order to have some of their debt erased.
Another important development is the expiration of the student loan payment moratorium. As part of an agreement on the debt ceiling, Congress ordered an end to the payment moratorium that has been in effect since the start of the pandemic in March 2020. The Department of Education has clarified that federal student loan payments will resume in October 2023, with interest scheduled to resume accruing in September. After three-and-a-half years of pauses, the resumption of monthly student loan payments is likely to be a sobering reality for the millions of borrowers with student debt. According to the Education Department, 30 million borrowers deferred their federal loans during the payment moratorium, while about 300,000 continued making payments.
The third development concerns the higher interest rates set for the 2023-24 academic year. Every May, interest rates on federal student loans are recalculated for the upcoming school year. The rates are determined by combining the yield on the 10-year U.S. Treasury note with an extra fixed amount set by Congress. Based on this calculation, interest rates on federal student loans will increase by about half a percent for the 2023-24 school year, marking the third consecutive year of increases. These rates will apply to new federal student loans issued between July 1, 2023, and June 30, 2024. It is important to note that the interest rate is fixed for the life of the loan. The higher interest rates are a result of continued inflation and the Federal Reserve’s series of rate hikes since last May, which has increased the yield on the 10-year Treasury note.
To summarize, recent developments in federal student loans include the blocking of loan cancellation by the U.S. Supreme Court, the expiration of the payment moratorium set by Congress, and the setting of higher interest rates for the 2023-24 school year. These developments will have significant implications for borrowers and the cost of repaying student loans. It is crucial for individuals to stay informed and prepared for these changes in the student loan landscape.
