Student Loan Forgiveness Suddenly Cut Off to Millions

The Department of Education has suddenly changed how it’s implementing President Joe Biden’s student loan forgiveness plan, potentially excluding more than 4 million borrowers with certain kinds of federal loans.

If you have Federal Family Education Loans (FFEL) or Perkins loans held by private lenders, you can no longer qualify for $10,000 in loan forgiveness (or $20,000 if you received a Pell grant) by consolidating your loans to federal direct loans, according to guidance published Thursday on the Federal Student Aid website. 

Up until Thursday, the Federal Student Aid website had advised students with privately-held FFEL and Perkins loans that they could in fact become eligible for forgiveness by consolidating.

If you’re wondering whether your loans can still be forgiven or not, the department said that if your loan payments are subject to the federal pandemic pause on payments and interest, they’re also eligible for forgiveness. 

The difference between those who can still get forgiveness and those who can’t lies with who holds the loan. Borrowers with direct loans, all of which are held by the government, will still qualify, as will borrowers with eligible loans who applied to consolidate before Thursday. FFEL and Perkins borrowers whose loans are held by the government are also still eligible. But as of Thursday, privately-held FFEL and Perkins loans are out. 

As of the second quarter of 2022, more than 4 million borrowers had privately-held FFEL loans, and 2.7 million people had government-held FFEL loans. There were 1.3 million borrowers with Perkins loans held by both private lenders and the government combined.

It remains to be seen whether borrowers with private FFEL and Perkins loans might somehow become eligible for forgiveness now that the consolidation pathway has been shut off.

The Department of Education (ED) said in the announcement on the site that it’s “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.”

“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,” a Department of Education spokesperson said in an email.

The change is likely a response to a lawsuit filed Thursday by Nebraska and five other states that sought to block Biden’s forgiveness action, student loan expert and author Mark Kantrowitz said via email. The states argued that student loan holders and servicers would be harmed by the action, since they will no longer be able to collect interest on those loans or be paid to service them. 

The department’s move is a legal maneuver to thwart the states, Kantrowitz said.

“This eliminates the states' legal standing to file a lawsuit, since they cannot demonstrate harm if FFELP and Perkins loans are not forgiven,” he said.

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