Student loan forgiveness was struck down by Supreme Court – here's what borrowers should do next

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The Biden administration's student loan forgiveness plan, which would have cancelled more than $400 billion in federal student loan debt, was struck down in a 6-3 Supreme Court decision released on Friday morning. 

Originally announced in August, the plan would have canceled up to $10,000 in federal student loan debt for borrowers making less than $125,000 or households making less than $250,000 annually. Pell Grant recipients would have received an additional $10,000 in forgiveness. It would have affected over 26 million Americans, and private borrowers would have been left unaffected.

"The Biden administration has said that they're going to continue to fight for borrowers, but I think this means game over," said Mark Kantrowitz, an expert on student aid and has written for decades about student loans in America. He continued that though the administration might pursue other historical avenues to forgive student loans, these avenues are narrow, limited and unlikely to see broad success.

Now that the forgiveness plan seems dead in the water, here's how you can prepare your finances for when payments resume this fall.

A broad forgiveness plan is now all but impossible any time soon.

Congress has passed a law preventing further extensions of the payment pause, which has been extended eight times. So, the ever-lingering freeze will certainly end as payments resume in October and interest begins accruing on Sept. 1.

Here's how you can be best prepared for your returning student loan payments:

1. Confirm your information

It's been more than three years since federal student loan payments were paused in March 2020.

Since then, some federal loan servicers have decided not to renew their contracts with the U.S. Department of Education, so you might have a different loan servicer than before the pause. You can check your current servicer at studentaid.gov.

Your personal information might have also changed since the onset of the pandemic. Many people have moved at some point in the past three years and need to make sure their loan servicer has their most up-to-date mailing information. You can update this information in your profile on the studentaid.gov website or directly on your loan servicer's website.

2. Update your autopay enrollment 

Prior to the pause, making automatic monthly payments toward your student loan debt might have been a smart decision, one that made it harder to miss a payment. But your circumstances might have changed since March 2020, and autopay may no longer suit you.

For example, you may no longer have a steady paycheck that once allowed you to pay the same amount each month. Or you may no longer be able to afford your monthly payments at all. It's important to make sure that your autopay enrollment is still a wise financial decision.

Alternatively, you may have turned automatic payments off while student loans were on hold. If you can afford your payments, you should turn autopay back on. This can prevent you from accidentally missing your first payment, which would be especially easy to forget if you have been used to not making payments actively for the past three years.

Some student loan servicers offer a quarter of a percentage rate of interest reduced as an incentive for borrowers who opt into autopay.

3. Adjust your payment plan

The studentaid.gov website lists eight repayment plans, each tailored to how much a borrower can afford. Plans differ by length of loan repayment and the amount paid monthly. Some plans have fixed, even payments that remain the same until the loan is paid off. Other plans increase payments gradually, and this type of plan makes the most sense for folks in careers with a clear path to progression and pay raises.

Your financial situation might have changed since the beginning of the pandemic, and you should consider updating your loan repayment plan to one that fits your current needs. Speak to your loan servicer to better understand which plan might be best for you.

4. Save your money and don't refinance now

You might be wondering what to do with your money right now while payments and interest are still frozen.

Kantrowitz said it makes no difference whether you start payments now or save your money and pay a lump sum in October. We recommend preparing for your resumed payments with a high-yield savings account, like a LendingClub LevelUp account.

Further, it might seem intuitive to refinance your federal student loan as your loan may look very different than it did three years ago. However, Kantrowitz said that because interest rates are so high right now, it might actually hinder you to refinance now. He advised borrowers to wait until interest rates are lower to refinance, which could take months or even years.

If you have a private student loan, and you still want to refinance, consider using one of our big bank recommendations, like Discover, whose terms are best for large balances. Borrowers may be able to refinance up to $150,000 through Discover, though, higher refinance limits may apply to some fields of study.

And if you borrowed money for school but never graduated, Citizens™ Student Loan Refinancing may be a strong option for you since this lender doesn't require borrowers to have graduated. On top of that, this lender doesn't charge a penalty for paying off your balance before the end of the loan term. This way, you can potentially save even more money when you pay off your balance early.

If you'd like more options for refinancing your private student loan balance, you can find a good match using CNBC Select's tool powered by Even financial.

5. Get your wallet ready

Don't procrastinate. One of the worst financial mistakes you can make is being passive on your student loan repayment. Weigh your options and contact your student loan servicer sooner rather than later, as servicers will likely be extremely busy when repayments restart.

Kantrowitz said he expects chaos when repayments restart, accompanied by an increase in delinquencies and defaults. One of the best ways to avoid being a victim of that chaos is by preparing your budget.

"Increasing your awareness of how you spend money enables you to exercise restraint," he said.

He said borrowers may also need to cut their spending or even take on an additional part-time job. He continued that, because unemployment rates are low right now, it might be a smart idea to ask your employer for a raise.

To prepare for your first payment, you should also check if you have a new monthly payment amount. Some federal borrowers might owe the same monthly amount as before, but other borrowers, like those enrolled in an income-based repayment plan that recalculates annually, might have a new payment amount. Be aware of how much money you'll need to make your first payment and start budgeting for that payment now.

Unless you've been extremely diligent in paying your loans and budgeting your money over the past three years, resuming student loan payments will likely impact your spending. Budgeting apps, like Mint and Empower can help you be aware of your expenses.

Kantrowitz said the confusion around student loans has caused a lot of stress over the past three years. For better or worse, it seems student loans are returning to business-as-usual, and borrowers should ready themselves accordingly.

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