In disappointing news for millions of Americans carrying student loan debt, the Biden Administration announced a reversal in its loan forgiveness program on September 29th, formally excluding borrowers with privately held federal loans, such as Family Federal Education Loans and Perkins Loans.
According to federal records, more than four million people still carry FFEL loans, once the primary lending vehicle for families who needed to finance higher education. The program was shuttered in 2010. Biden’s loan forgiveness package, which promises debt forgiveness of up to $20,000, only applies to Federal Direct loans, which are both owned and backed by the government. FFEL loans were provided by private lenders but with government support.
The administration, concerned about being sued by private lenders who will lose profit generated by those loans if they are forgiven, changed its recommendations for FFEL holders. Initially, the guidance suggested that FFEL holders could consolidate or refinance their loans, turning them into Federal Direct loans, in order to qualify for Biden’s forgiveness plan. But the language on the Education Department’s website quietly changed to reflect a deadline for consolidation that had never been announced.
The website FAQ now says, “As of Sept. 29, 2022, borrowers with federal student loans not held by ED cannot obtain one-time debt relief by consolidating those loans into Direct Loans. 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.”
According to NPR, the change could affect up to 800,000 borrowers.
The reversal comes in the wake of the first, of likely many, lawsuits against the White House that are attempting to block the loan forgiveness program. Arkansas, Iowa, Kansas, Missouri, Nebraska, and South Carolina requested a federal injunction based on the program’s constitutionality. Representatives of the states claim that Biden’s loan forgiveness program is an example of executive overreach, that he does not have the power to forgive the debt, and that loan forgiveness would harm the states.
The states involved gain revenue from student loan debt and fund some programs, like Nebraska’s pension program. Any forgiveness, they claim, would be injurious to the states and their residents.
Although this change implies that the Administration has tucked tail and run from the potential of legal complications regarding FFEL loans, the Education Department told NPR that it is considering other options. “Our goal is to provide relief to as many eligible borrowers as quickly and easily as possible, and this will allow us to achieve that goal while we continue to explore additional legally-available options to provide relief to borrowers with privately owned FFEL loans and Perkins loans, including whether FFEL borrowers could receive one-time debt relief without needing to consolidate.”
At present, no other types of loans that were originally included in the loan forgiveness program have been excluded, including Parent PLUS and Graduate PLUS loans. The rule of thumb remains that if you qualified for the pandemic payment pause, you qualify for forgiveness… unless you have a FFEL or Perkins loan.