In Reversal, Biden Administration Announces New Eligibility Limits On Student Loan Forgiveness – Forbes

WASHINGTON, DC August 24, 2022: US President Joe Biden delivers remarks regarding student loan … [+] debt forgiveness in the Roosevelt Room of the White House on Wednesday August 24, 2022. Education Secretary Miguel Cardona joined. (Photo by Demetrius Freeman/The Washington Post via Getty Images)
The Biden administration abruptly changed course on Thursday and announced it will limit eligibility for a sweeping new federal student loan forgiveness program to borrowers who have government-held loans only. This would exclude hundreds of thousands of borrowers with an older kind of federal student loan who were previously told they could qualify.
Here’s the latest.
Under the plan first announced in August, President Joe Biden’s one-time student loan cancellation initiative would provide up to $20,000 in federal student loan forgiveness for borrowers. The Education Department suggested that up to 40 million borrowers would be eligible for relief, with up to half of those borrowers becoming completely debt-free.
The Education Department had originally indicated that all government-held federal student loans, including undergraduate, graduate, and Parent PLUS loans, would qualify for loan forgiveness. Commercially-held loans through the Family Federal Education Loan (FFEL) program would not automatically qualify, said the Department, but borrowers could consolidate those loans into a Direct consolidation loan to receive the student loan forgiveness benefits. The FFEL program is an older federal student loan program, discontinued in 2010, where private lenders issued federal loans backed or guaranteed by the government.
“Borrowers with privately held federal student loans, such as through the FFEL, Perkins, and HEAL programs, can receive this relief by consolidating these loans into the Direct Loan program,” wrote the Education Department in its published guidance.
In a stunning reversal on Thursday, the Education Department changed its position on FFEL eligibility for student loan forgiveness.
“As of Sept. 29, 2022, borrowers with federal student loans not held by ED [the U.S. Department of Education] cannot obtain one-time debt relief by consolidating those loans into Direct Loans,” wrote the Education Department in updated guidance published on its website.
The Education Department clarified that, “Borrowers with FFEL Program loans and Perkins Loans not held by ED who have applied to consolidate into the Direct Loan program prior to Sept. 29, 2022, are eligible for one-time debt relief through the Direct Loan program,” ensuring that borrowers who already took steps to consolidate are effectively grandfathered in.
And borrowers who have already consolidated their FFEL loans could also still potentially qualify for relief. In addition to Direct consolidation loans comprised of loans that were held by the Education Department, “Consolidation loans comprised of any FFEL or Perkins loans not held by [the Education Department] are also eligible, as long as the borrower applied for consolidation before Sept. 29, 2022,” according to the new guidance.
But other borrowers may be out of luck.
Advocacy organizations for student loan borrowers slammed FFEL lenders following the announcement. “FFEL lenders have shown their true colors,” said the Student Borrower Protection Center in a tweet on Thursday. “Instead of working in the interest of student loan borrowers – their customers – these lenders are holding hostage relief from millions in order to keep making a buck off of suffering.”
The Biden administration’s reversal seems to stem from concerns that commercial FFEL lenders may proceed with litigation to block the new student loan forgiveness plans. FFEL lenders could have their federal student loan portfolios severely reduced if hundreds of thousands of borrowers consolidate into the Direct loan program to get the new student loan forgiveness benefits.
The Education Department indicated that the administration is “assessing whether there are alternative pathways to provide relief to borrowers with federal student loans not held by ED, including FFEL Program loans and Perkins Loans, and is discussing this with private lenders.” But nothing is guaranteed at this juncture.
Earlier this week, a conservative legal organization filed a lawsuit intended to block the new student loan forgiveness program. And today, six Republican-led states announced they would be suing the Biden over the plan, arguing the administration exceeded its authority.
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