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Student loan forgiveness is halted after court ruling. Here's what you should do.

Judge blocks Biden's student loan relief plan
Judge blocks Biden's student loan relief plan 00:21

The Biden Administration's plan to provide up to $20,000 in loan relief for student borrowers is now halted after a federal judge in Texas blocked the program and declared it "unlawful," raising questions and financial uncertainty for the roughly 40 million Americans who qualify for debt forgiveness. 

Already, 26 million people have applied to the program since the application went live in October. But after the ruling on Thursday, the Biden administration stopped taking applications for its student debt forgiveness program. 

While the administration plans to appeal, the ruling prompts questions about what may happen next as legal challenges unfold, and as borrowers face a financial deadline with the student debt repayment hiatus slated to expire in December and repayments set to restart in January. If the appeal is not decided by then, millions could be on the hook for repayments that they may not have anticipated.

"Student debt is one of the largest financial stressors facing Americans right now, and it's been an extremely confusing time for borrowers," noted Kristen Carlisle, general manager of Betterment at Work. 

Here's what experts believe will come next for Biden's debt-relief program — and steps borrowers can take.

What happens next in the legal process? 

The Biden administration said it plans to appeal the ruling, but the legal process could take weeks to play out. The Fifth Circuit Court of Appeals will hear the case, with Height Securities noting in a Friday research report that the court has "arguably become one of the most conservative appeals courts in the country."

After the appeals court decision, either side is likely to appeal to the Supreme Court, where Justice Samuel A. Alito, a conservative, would first review the case, Height Securities said. 

The typical appeals process takes six months, but the courts have been expediting this case because of its significance, higher education expert Mark Kantrowitz noted. It's possible the case could be resolved before January, when debt repayment is scheduled to restart, but it's not a certainty. 

It's also not certain if the case will be resolved in favor of the Biden administration, which is also facing additional legal challenges to the loan relief program, Kantrowitz noted. 

Should I plan on repaying my loans in January? 

Yes. Given the uncertainty of the timing of the appeals process, it would be prudent for borrowers to plan for full repayment starting in January. In other words, borrowers should be prepared to pay back their debts without the forgiveness promised by the Biden administration, Kantrowitz said.

While there's still a chance the plan could move forward, borrowers may not want to risk getting caught in a financial crunch in case the appeal drags on or it isn't resolved in favor of the Biden administration.

"Worst case scenario, they will have to start making repayments," Kantrowitz said. "I'd recommend they start planning for it regardless."

I haven't applied yet for loan relief. What can I do?

At the moment, there's not much you can do if you haven't applied for the program: The Biden administration has stopped taking applications for its student debt forgiveness program, citing the judge's ruling.

About 26 million people have applied so far, but about 38 million to 40 million people may be eligible for the program, according to various estimates. That means 12 to 14 million people have yet to apply for relief. 

Those borrowers may be most at risk of facing repayment in January, Kantrowitz said. That's because the Department of Education and loan services need about 4-6 weeks to process the applications. So, even if the court case resolves in favor of the Biden administration before the end of November, it's possible that these borrowers will run out of time to get their applications processed before January.

"They would probably have one month of repayment before the forgiveness applies," Kantrowitz said.

Could the debt repayment hiatus be extended? 

That's one option for the Biden administration, in case the legal road drags on or the courts rule against the loan-relief program, Kantrowitz said. 

"President Biden could extend it through the remainder of his term," Kantrowitz said of the debt-repayment hiatus. "There's very little that can be done about it. After all, it's been extended seven times already with the HEROES Act justification, and nobody has filed a lawsuit claiming he doesn't have the authority."

Even so, the Biden administration declared the previous hiatus extension, made in August, as the "final student loan pause extension." If the administration does decide to extend it one more time, past actions indicate the effort could come down to the wire. For instance, the August extension was announced about a week before the pause was set to expire on August 31. 

How should I prepare for repayment?

Check which servicer is currently holding your debt because there have been changes during the pandemic, such as Navient exiting the student loan program. 

Be aware of how much you'll owe in January without debt relief from the Biden program. With that knowledge, you can start carving out some extra money in your budget, Kantrowitz said.

Lastly, Kantrowitz recommends setting up an automatic payment system so you don't run the risk of late payments.

"For one, you are less likely to be late and to deal with the potential for confusion the the restart of repayment," he said. "The call centers are likely to get a lot of calls" as repayment begins.

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