The Biden administration changed its guidelines for who is eligible for federal student loan forgiveness on Thursday, hours after six Republican-led states challenged their student debt forgiveness package.
Biden said in August that the U.S. government would write off $10,000 in student loans for millions of debt-ridden former students, fulfilling a promise he made during the 2020 White House campaign.
Thursday’s decision by the U.S. Department of Education affects borrowers of the Federal Family Education Loan (FFEL) — whose loans are originated and administered by private banks but guaranteed by the federal government — and does not allow them to consolidate their loans and take advantage of debt relief .
Previously, the Department’s website informed these borrowers that they could consolidate these loans into direct federal loans and qualify for emergency assistance.
On Thursday, the secretary changed the wording to read: “Beginning September 29, 2022, borrowers with federal student loans that are not owned by ED cannot obtain one-time debt relief by consolidating those loans into Direct Loans.”
According to federal data, more than 4 million borrowers still have commercially owned FFEL loans.
The reasons for this decision were not immediately specified.
“Just yesterday the site said it was working on a solution for these borrowers,” tweeted Betsy Mayotte, president of the Institute of Student Loan Advisors. “It’s a blow to say the least.”
Earlier Thursday, in a lawsuit, Nebraska, Arkansas, Iowa, Kansas, Missouri and South Carolina asked the court for an immediate temporary order that puts the student debt settlement on hold.
The lawsuit claims that when FFEL borrowers consolidate their old loans into direct federal loans, private banks essentially lose business.
The lawsuit comes two days after the conservative group Pacific Legal Foundation filed a federal lawsuit to stop Biden’s student loan cancellation plan.
On Monday, the Congressional Budget Office said Biden’s plan to write off some student loan debt will cost $400 billion.
Critics of the plan raised concerns about its inflationary impact, while the White House said it was fiscally justified as the federal deficit was on track to shrink by $1.7 trillion in the current fiscal year. compared to the previous year. The reduction in the deficit is largely due to the end of many COVID-19 relief programs and an unexpected increase in income.
Per As of June 30, 43 million borrowers had $1.6 trillion in federal student loans. About $430 billion of that debt will be forgiven, CBO estimated. The CBO had previously predicted that some of the funds canceled by Biden’s action would ultimately have been canceled anyway. (Reporting by Paul Grant and Nandita Bose; Editing by Tim Ahmann and Deepa Babington)