On September 29, 2022, the United States Department of Education updated guidance for the Biden administration’s student loan forgiveness plan. Under the updated policy, borrowers with federal private student loans are no longer eligible for loan forgiveness.
Federal Family Education Loans and Perkins Loans
In August 2022, President Biden announced his three-part plan to provide broad student loan forgiveness to low-to-middle-income borrowers. In a press release, the government announced that eligible borrowers with individual annual income of less than $125,000 (or $250,000 for married couples) would receive debt relief of up to $10,000, while Pell Grant recipients would receive up to $10,000. $10,000 in additional student benefits loan forgiveness.
Borrowers of federal student loans not held by the Department of Education can no longer receive one-time debt relief by consolidating their loans into direct loans, according to the recently updated Federal Student Aid website. Earlier today, the same page said borrowers with federal private student loans could receive this relief as long as they consolidate their loans into the Federal Direct Loan Program (FDLP).
As a result of this reversal, borrowers with Federal Family Education Loans (FFELs) and Perkins Loans not held by the Department of Education will no longer be eligible for loan forgiveness upon their release unless they apply for their consolidated loans before September 29 borrowers would be directly affected by this change.
Private creditors are pushing for student debt relief
The US Department of Education has yet to issue an official statement on what prompted this change. According to the Federal Student Aid website, “[ Department of Education ] is evaluating and discussing whether alternative avenues exist to provide relief to borrowers on federal student loans not held by [ Department of Education ], including FFEL program loans and Perkins Loans with private creditors.
The prevailing assumption is that private banks could sue to try to stop Biden’s debt relief. The reason for this would be that if FFEL borrowers were to consolidate their old loans into federal direct loans, these private lenders could lose business – the commercial entities that administer these loans. A lawsuit filed earlier today seeks to prove that to the Missouri Higher Education Loan Authority (MOHELA), which manages former FFELs.
As a result, the government can expect them to face fewer legal challenges from private lenders, thus reducing the number of FFEL borrowers who may be eligible for debt relief.