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Education Department Quietly Excludes Subset of Student Loans From Relief Plan

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

Here’s what you need to know.

Key learning points

  • Borrowers with federal student loans not held by the Department of Education, especially private Federal Family Education Loans (FFELs) and Perkins loans, are not eligible for one-time debt relief.
  • According to NPR, a Biden government official estimated that about 800,000 borrowers would be directly affected by this change.
  • The Ministry of Education has not issued an official statement explaining this change, but legal experts have hypothesized that it may have been done to appease private lenders running old FFELs.

Federal Educational Family Loans and Perkins Loans Are Out

In August 2022, President Biden announced his three-part plan to issue broad-based student loan forgiveness for low- to middle-income borrowers. In a press release, the administration announced 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 debt forgiveness. of student loans.

According to the recently updated Federal Student Aid website, borrowers with federal student loans 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 stated that borrowers with private federal student loans could receive this exemption as long as they consolidated their loans into the Federal Direct Loan Program (FDLP).

As a Result of this chargeback, borrowers with Federal Family Education Loans (FFELs) and Perkins loans not held by the Department of Education will no longer be eligible for loan waiver once it’s rolled out unless they apply before September 29. submitted to consolidate their loans. Speaking to NPR, an official in the Biden administration stated that approximately 800,000 borrowers would be directly affected by this change.

Private lenders put pressure on student debt relief

The U.S. Department of Education has not yet issued an official statement as to the reason for this change. According to the Federal Student Aid website, “[The Education Department] assesses whether there are alternative avenues to relieve borrowers with federal student loans that do not hold [the Education Department]including FFEL Program loans and Perkins loans, and is in discussions with private lenders.”

The prevailing hypothesis is that private banks could file a lawsuit to try to block Biden’s debt relief. The reason for this would be that these private lenders will lose business if FFEL borrowers consolidate their old loans into federal direct loans.

Opponents of the Biden administration’s plan have argued that canceling large portions of student debt would financially damage the commercial entities that manage these loans. A lawsuit filed earlier today seeks to prove just that before the Missouri Higher Education Loan Authority (MOHELA), which manages old FFELs. As such, it is possible that the government hopes they will face fewer legal challenges from private lenders by reducing the number of FFEL borrowers eligible for debt forgiveness.

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