Some federal student loan borrowers cannot consolidate for forgiveness

A graduate calling herself “April Vendetta” protests student debt in Washington Square Park, New York on May 19, 2021, after New York University’s mock 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 to qualify for President Joe Biden’s student loan forgiveness program, according to new guidance from the department.

The update on the Department of Education’s guidance on one-time student loan debt relief is a departure from previous guidance, under which those borrowers could consolidate their debts into Direct Loans in order to qualify for the relief .

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

More from Personal Finance:
Are your student loans eligible for federal forgiveness?
What Biden’s student loan forgiveness means for your taxes
Pell Grant recipients react to student loan forgiveness

But the plan’s announcement immediately raised questions about whether borrowers with Federal Family Education Loan Program, or FFEL, loans that are not held by the government would also be eligible.

At the time, the Department of Education was said to be exploring strategies to allow these “missing borrowers,” estimated to total about 5 million, to be excluded from forgiveness.

However, the number of borrowers affected by this decision is about 770,000, according to an administration official. This is as some may be exempt based on income requirements, while others may qualify for relief based on other loans held by the government.

Those with commercial FFEL loans have been excluded from the federal student loan payment freeze that was in effect throughout the pandemic.

In an update on its website, the Department of Education now states, “Consolidation loans consisting of non-ED FFEL or Perkins loans are also eligible if the borrower filed for consolidation before September 29, 2022.”

President Biden Announces Student Loan Debt Relief Plan

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

“Just yesterday, the website said they were working on a solution for these borrowers,” Betsy Mayotte, president of the Institute of Student Loan Counselors, he tweeted. “That’s a punch in the gut, to say the least.”

The Department of Education is evaluating whether there are alternative ways 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.

Leave a Reply

Your email address will not be published. Required fields are marked *