Personal Finance

In a reversal, the Education Department is now excluding millions from student loan relief

A graduate who calls himself “April Vendetta” protests student debt in New York’s Washington Square Park on May 19, 2021, after New York University’s virtual commencement ceremony.

Timothy A. Clary | AFP | Getty Images

Federal student loan borrowers whose loans are not held by the U.S. Department of Education will no longer be able to consolidate in order to qualify for President Joe Biden’s student loan forgiveness program, according new guidance from the department.

The update on the Education Department’s guidance for the one-time student loan debt relief is an about-face from previous guidelines, which said those borrowers could consolidate their debts to Director Loans in order to qualify for the relief.

Biden announced plans for sweeping student loan forgiveness in August. That includes up to $10,000 in forgiveness for federal student loan borrowers and up to $20,000 in relief for Pell Grant recipients. In order to qualify, borrowers had to be under certain income thresholds — $125,000 for individuals and $250,000 for households.

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However, the plan announcement immediately raised questions as to whether borrowers with Federal Family Education Loan Program, or FFEL, loans not held by the government would also be eligible.

At the time, the Education Department was said to be exploring strategies to allow those “overlooked borrowers,” who are estimated to total roughly 5 million, from being excluded from forgiveness. Those with commercially-held FFEL loans have been excluded from the federal student loan payment pause that has been in place throughout the pandemic.

In an update to its website, the Education Department now states, “Consolidation loans comprised of any FFEL or Perkins loans not held by ED are also eligible, as long as the borrower applied for consolidation before Sept. 29, 2022.”

Student loan experts and borrowers were quick to express their shock as news of the policy change hit social media on Thursday.

“As recently as yesterday, the site said they were working on a solution for these borrowers,” Betsy Mayotte, president of The Institute of Student Loan Advisors, tweeted. “This is a gut punch, to say the least.”

The Education Department is 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,” the website states.

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