Evan Vucci / AP
In a remarkable reversal that will affect the fortunes of many student loan borrowers, the U.S. Department of Education has quietly changed guidance on who qualifies for the President’s sweeping student debt relief plan. President Biden.
At the heart of the change are borrowers who took out federal student loans years ago, both the Perkins loan and the Federal Family Education Loan. FFEL loans, issued and administered by private banks but guaranteed by the federal government, were the mainstay of the federal student loan program until the FFEL program ended in 2010.
Today, according to federal data, more than 4 million borrowers still have commercially organized FFEL loans. Until Thursday, the department’s own website advised these borrowers that they could consolidate these loans into a federal Direct Loan and thus qualify for relief under the debt cancellation program. by Biden.
On Thursday, however, the department quietly changed that language. The guidance now says, “As of September 29, 2022, borrowers with federal student loans that are not held by the ED cannot receive a one-time loan relief by pooling those loans. into a Direct Loan.”
An administration official told NPR that the change would not affect all 4 million borrowers with commercially held FFEL loans. The official said many FFEL borrowers also have Direct Loans and therefore may still be eligible to consolidate those FFEL loans, although that detail was not included in the department’s updated guidance. .
Ultimately, the administration official said, about 800,000 borrowers will be directly affected.
It is not clear why the Department reversed its decision to allow FFEL borrowers with commercial loans to consolidate and then qualify for forgiveness.
In a statement to NPR, a department spokesman said, “Our goal is to provide relief to as many eligible borrowers as quickly and easily as possible, and this will allow We achieve that goal while we continue to explore additional legally available options to provide relief to borrowers with privately owned FFEL loans and loans. Perkins, including whether FFEL borrowers can get a one-time loan reduction without consolidation Borrowers with privately held federal student loans who have applied for consolidation their loans into Direct Loans before September 29, 2022 will be forgiven one time. The FFEL program is now defunct and only a small percentage of borrowers have FFEL loans. “
The notice in that statement is “legally available.”
Many legal experts told NPR that the policy reversal could be done due to concerns that private banks that manage FFEL’s old loans are likely to file lawsuits to block the debt relief, for that Biden’s plan would leave them financially vulnerable.
When FFEL borrowers consolidate their old loans into federal Direct Loans, these private banks are essentially losing money. If the financial health of these banks depends, at least in part, on the assumption that they will hold and profit from these liabilities over the long term, losing borrowers to Biden’s debt forgiveness plan , may cause harm.
In reality, a new lawsuit filed Thursday by six state attorneys general, makes this argument. One of the plaintiffs, Missouri, is the headquarters of MOHELA, which administers both the federal Direct Loan and these former FFEL program loans.
“MOHELA’s consolidation of FFELP loans harms the legal entity by depriving the entity of assets (the FFELP loans themselves) that it currently owns,” the complaint said. “MOHELA’s consolidation of FFELP loans harms legal entities by depriving them of the ongoing interest payments those loans generate.”
In response to the lawsuit, Persis Yu, of the Student Borrower Protection Center, said, “FFEL lenders have shown their true colors. Instead of working for the benefit of student borrowers – their customers – these lenders are bailing out millions of hostages. borrowers to continue to make borrowers suffer.”
Changing policy now, and limiting the number of FFEL borrowers that can qualify for forgiveness, could make these FFEL banks less likely to legally oppose forgiveness.