In a reversal, the Education Department said on Thursday it would no longer allow borrowers who have federal student loans that are owned by private entities to qualify for the relief program.
The student loans that are guaranteed by the federal government but held by private entities account for a relatively small, and shrinking, subset of all outstanding federal student debt.
Administration officials said when they announced the debt relief program in August that borrowers with federally guaranteed loans should consolidate their loans in order to receive loan forgiveness.
“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,” an Education Department spokesperson said in a statement.
For example, in the lawsuit, Missouri Attorney General Eric Schmitt argues that the Missouri Higher Education Loan Authority, a quasi-state entity, which owns and services federally guaranteed student loans, faces economic harm from the debt relief program.
They argue they’ll face lost tax revenue as a result of Biden’s student debt relief program for all types of federal student loans.
The Education Department spokesperson said the policy change would affect “only a small percentage of borrowers.” The most recent federal data, as of June 30, shows there were 4.1 million federal borrowers with $108.8 billion of loans held by private lenders.
Another 1.5 million borrowers have a certain type of privately held federal loan — an FFEL consolidation loan — would have faced a complex process for making their loans eligible for relief, according to an administration official
The Education Department said on its website Thursday it “is 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 this with private lenders.”