Education Department quietly excludes subset of student loans from relief package

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On September 29, 2022, the United States Department of Education updated the guidelines for the Biden administration’s student loan forgiveness plan. Under the updated policy, borrowers with private federal student loans are no longer eligible to receive loan forgiveness.

Here’s what you need to know.

Key points to remember

  • Borrowers with federal student loans not held by the Department of Education, particularly Federal Family Education Loans (FFEL) and Perkins loans, will not be eligible for one-time debt relief.
  • According to NPR, a Biden administration official estimated that about 800,000 borrowers would be directly affected by this change.
  • The Department for Education has not released an official statement explaining the change, but legal experts have speculated it may have been done to appease the private lenders who run the former FFELs.

Federal Home Education Loans and Perkins Loans Ended

In August 2022, President Biden announced his three-part plan to issue broad student loan forgiveness for low-to-middle income borrowers. In a press release, the administration revealed that eligible borrowers with individual annual incomes of less than $125,000 (or $250,000 for married couples) would receive up to $10,000 in debt forgiveness, while Pell Grant recipients would receive up to $10,000 in additional student loan forgiveness. .

According to the recently updated Federal Student Aid website, borrowers whose federal student loans are not held by the Department of Education can no longer get one-time debt relief by consolidating their loans into direct loans. Prior to today, the same webpage indicated that borrowers with private federal student loans would be eligible for this relief as long as they consolidated their loans into the Federal Direct Lending Program (FDLP).

As a result of this reversal, borrowers with Federal Family Education Loans (FFEL) and Perkins Loans not held by the Department of Education will no longer be eligible for loan forgiveness once it is rolled out. , unless they asked to consolidate their loans before September 29. Speaking to NPR, a Biden administration official said about 800,000 borrowers would be directly affected by the change.

Private lenders push for student debt relief

The US Department of Education has yet to issue an official statement on the reasons for this change. According to the Federal Student Aid website, “[The Education Department] assesses whether there are other avenues to relieve borrowers with federal student loans not held by [the Education Department]including FFEL program loans and Perkins loans, and is discussing this with private lenders.”

The prevailing assumption is that private banks could take legal action to try to block Biden’s debt relief. The reason would be that these private lenders risk losing business if FFEL borrowers consolidate their old loans into direct federal loans.

Opponents of the Biden administration’s plan have argued that writing off huge swathes of student debt would constitute financial harm to the commercial entities that service those loans. A lawsuit filed earlier today attempts to prove just that for the Missouri Higher Education Loan Authority (MOHELA), which administers FFEL alumni. As such, the administration may hope to face fewer legal challenges from private lenders by reducing the number of FFEL borrowers eligible for debt forgiveness.

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