Hundreds of thousands of borrowers will no longer qualify for President Joe Biden’s student loan forgiveness program, according to new guidance from the U.S. Department of Education.
In a stunning reversal from previous guidelines, many borrowers who have federal student loans that are owned by private entities are no longer eligible for debt relief.
“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.”
In August, the Biden administration announced that the government would forgive up to $10,000 in federal student loans for those making less than $125,000 a year for individuals or $250,000 for married couples or heads of households and up to $20,000 for Pell Grant recipients who meet the income threshold. Private loan holders are not included in the plan.
Here’s what the updated guidance — and a new legal challenge to Biden’s student loan forgiveness plan —mean for borrowers.
Who no longer qualifies for debt relief?
Until Thursday, borrowers with privately held federal student loans qualified for relief if they consolidated their loans into the Direct Loan program.
According to the new guidance, however, borrowers with FFEL or Perkins loans not held by the department can no longer obtain one-time debt relief through consolidation, and will only qualify for forgiveness if they applied for consolidation before Sept. 29.
The development will affect “a small percentage of borrowers,” Michelle Dimino, deputy director of education at public policy group Third Way, tells CNBC Make It. About 4.1 million federal borrowers have $108.8 billion in loans held by private lenders as of June 30, according to the most recent federal data.
This change will not impact all 4 million borrowers with commercially held FFEL loans, as many also have a direct loan from the government that qualifies for relief and others do not meet the program’s income requirements, an administration official told Politico.
The department did not immediately respond to CNBC Make It’s request for comment.
Ultimately, close to 800,000 borrowers will be directly affected by the policy change, NPR reports.
How can I check if I am still eligible for student loan forgiveness?
First, you should verify that you meet the income threshold by checking your 2020 and 2021 tax returns, as experts say that the administration will likely estimate your annual income from either, or both, of those forms.
The best way to confirm whether or not you will be affected by changes to the program is by calling your loan servicer and asking what kind of loans you have, says Scott Buchanan, executive director of the Student Loan Servicing Alliance.
Since the FFEL program ended in 2010, if you took out any federal loans after that year, they’re likely held by the government, and you’ll still qualify for relief, Buchanan adds.
Could legal challenges to the forgiveness plan delay relief?
Earlier this week, an attorney for the Pacific Legal Foundation, a conservative law organization, launched the first major legal challenge to Biden’s plan.
“This won’t be the last legal challenge we’ll see, and any of those have the potential to delay or indefinitely pause the rollout of the relief,” Dimino says. “There’s a lot of complicated factors for the department to work through, because no other administration has attempted wide-scale debt relief like this before.”
Attorneys general in Missouri, Arizona, Texas and other states are also “considering their options” to block loan forgiveness, CNBC reports.
Buchanan adds that while there’s been a lot of noise, the most reliable source borrowers can check for information about the plan is what the Education Department is publishing on its FAQ page. He also encourages borrowers to sign up for the department’s “federal student loan borrower updates” emails to be notified when the application is live.
On its website, the department said it is still assessing “whether there are alternative pathways to provide relief to borrowers with federal student loans not held by [the Education Department], including FFEL Program loans and Perkins Loans,” and is discussing possible actions with private lenders.