Student debt coming due for more than 1 million NJ students after Supreme Court ruling

Thousands of New Jersey's 1.3 million student borrowers received bad news Friday from the Supreme Court: they will have to start paying back their loans — without any relief — this fall.

The ruling struck down President Joe Biden's plan to erase $10,000 in federal student loans and $20,000 for low-income recipients of the Pell Grant, a one-time measure introduced when loan repayments were paused during the pandemic.

The ruling effectively sets in motion repayments on all publicly backed student loans starting October, though interest charges kick back in a month earlier on Sept. 1.

The pandemic-era pause on repaying federal student loans was put in place and extended by both Trump and Biden administrations, but six Republican states immediately sued to stop the debt relief measure proposed in August by the Biden administration. It would have abolished $430 billion in student loans, completely canceling loan balances for around 20 million borrowers nationwide. Thursday's Supreme Court ruling struck down that proposal with a 6-3 ruling, siding with the legal challenge brought by the Republican states.

The federal government overstepped its authority by trying to erase debt, a measure that should be left to Congress to authorize, Chief Justice John Roberts said in a majority opinion speaking for the court's conservative justices. In a dissent, fellow Justice Elena Kagan criticized the Supreme Court, saying it was overstepping its own authority and limiting the scope of the HEROES Act, passed after the 9/11 attacks, which allows the federal government to implement relief measures during a national emergency. Trump and Biden invoked the HEROES Act to put in place the pause on repayments.

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The court broke with the law as it is written, and did not "hew to [the] statute’s text.," said Kagan in her dissenting opinion. "The HEROES Act’s text settles the legality of the Secretary’s [of Education] loan forgiveness plan," she wrote, by giving him "broad authority to give emergency relief to student-loan borrowers, including by altering usual discharge rules."

This is a case of the “Executive seizing the power of the Legislature,” Roberts wrote in his majority opinion. "The Secretary's assertion of administrative authority has conveniently enabled [him] to enact a program,” he wrote.

Students with federal loans who graduated in 2020, 2021, 2022 and 2023 have never made a student loan payment, after the federal government invoked the HEROES Act to pause payments and interest accrual on what was owed.

Those students should immediately sign up for an FSA account, if they have not already done so on studentaid.gov to learn when their payment is due and how much their payment is, said Jack Wallace, Director of Governmental & Lender Relations at Yrefy, a private company that specializes in solutions for borrowers who are delinquent or in default for their loans. Borrowers should also make sure their loan service providers have all their contact information, such as their proper address, email and phone number.

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"For those who have never made a student loan payment, it's very important for them now to communicate with their servicer whoever that may be," Wallace said. "Because you've got 40 million Americans that have federal student loans that are going back into repayment all at the same time, borrowers and families need to be proactive in communicating with the servicers and with the FSA," he said. "The wait times are going to be brutal so the sooner they do this, the better," as repayment dates approach, he said.

There are more than 1.3 million borrowers in New Jersey with a total amount of student loan debt of close to $50 billion, said senior economist and student loan repayment expert Jacob Channel of LendingTree, an online loan repayment marketplace. That's around 1 out of 9 New Jerseyans, he said. The ruling applies only to those who had publicly backed student loans, but it still quashes hope for those who would have otherwise seen a large chunk of their debt immediately wiped out.

"Just have patience," advised Wallace. "Expect long wait times on the phone. Be proactive in contacting your servicers or servicer, and make sure that you've got your FSA account set up." Borrowers should also explore other federal loan relief measures like a public service forgiveness program or income driven repayment programs, he said.

Many borrowers who took federal loans in addition to private loans, typically at higher-cost schools like the Ivy Leagues will likely face additional duress in coming months, he said.

A grace period until the end of the year for loan repayments could be in the cards at the Department of Education, said Channel, of LendingTree. But short of Congress passing a law to provide actual relief, borrowers should prepare to pay back whatever they currently owe.

"Starting in October, there might be a grace period in there a few months, but the Biden administration at this point cannot further extend the student loan payment pause." he said.

New Jersey is going to feel the pain of repayments kicking back in, said Channel, because of its dense population and proximity to New York City.

"There's a lot of emphasis on higher education especially in a lot of the big industries New Jersey and New York and share," he said. "So I think potentially there are a lot of people who who could have could really, really benefited from forgiveness going through."

Gov. Phil Murphy said he was "disappointed" with the ruling in a statement.

“Here in New Jersey, we will continue our efforts to make college more affordable and accessible to all those seeking a higher education. I encourage our federal partners to continue seeking solutions to the student loan debt crisis facing many working and middle-class Americans throughout our country.”

This article originally appeared on NorthJersey.com: Supreme Court strikes down student debt relief. NJ get ready for fall