The U.S. government is on track to default on its debt payments by June 5, 2023. However, President Joe Biden and GOP Speaker of the House Kevin McCarthy reached an agreement last weekend that would allow the debt ceiling to be raised and prevent a default.
Anyone who is currently paying off a student loan will be impacted by the terms of the agreement. Biden's debt ceiling deal ends the freeze on student loan repayment. Here's what borrowers need to know.
When will student loan repayments resume?
Both the Trump and Biden administrations have temporarily paused the collection of all student loans due to the COVID-19 pandemic. The Biden administration had previously announced that repayments of student loans would resume 60 days following June 30, 2023, or a decision by the U.S. Supreme Court on the president's student loan debt cancellation plan, whichever comes first.
The budget ceiling deal lines up with this schedule. It stipulates that "sixty days after June 30, 2023" any changes that suspend student loan repayments will "cease to be effective." This means that all student loan repayments must resume by Aug. 30, 2023.
Could repayments again be paused?
President Biden has seemingly been ready to end student loan payment pauses several times in the past. Each time, though, his administration extended the policy instead of allowing it to expire.
These moves by the White House won't be allowed under the terms of the budget ceiling deal. The wording of the legislative text explicitly states that only an act of Congress could again suspend the collection of student loan debt.
Technically, it's possible that repayments could again be paused. However, with the GOP controlling the U.S. House of Representatives, the chances that a bill could pass that suspends student loan repayments appear to be very low.
When will the debt ceiling deal go into effect?
With the clock ticking for a potential default by the U.S. government, both chambers of Congress are scrambling to vote on the deal struck between President Biden and House Speaker McCarthy. The U.S. House of Representatives could vote on the legislation as soon as Wednesday, May 31, 2023.
Assuming the bill passes in the House, it will then go to the U.S. Senate for consideration. Senate Majority Leader Chuck Schumer (D-N.Y.) has informed senators that a vote could be held over the weekend, according to a report by Politico.
If the Senate passes the legislation, President Biden would likely quickly sign it before the federal government completely runs out of money under the current debt ceiling.
What happens if the debt ceiling deal doesn't pass?
Even if the debt ceiling deal isn't approved by Congress, student loan payments could still resume by Aug. 30, 2023 based on the Biden administration's current plans. However, a pending decision by the U.S. Supreme Court could shake things up.
President Biden moved forward unilaterally with his plan to forgive up to $20,000 of student loans. This would affect around 43 million people. But the plan was put on hold by a federal appeals court. That resulted in the case being escalated to the Supreme Court.
Should the Supreme Court side with the Biden administration, the student loan debt owed by many Americans will be reduced significantly. Some legal observers, though, expect the high court will rule that the president doesn't have the authority to forgive student loans without congressional approval.
Regardless of what happens at the Supreme Court, all Americans with or without student loans could suffer if the debt ceiling deal doesn't win enough votes to pass in either congressional chamber. A default by the U.S. government would almost certainly send the economy into a recession and rattle markets around the world.