The Department of Education (ED) changed President Biden’s student debt relief program on Sept. 29 making Federal Family Education Loans (FFEL) or Perkins Loans ineligible for forgiveness.
“Our goal is to provide relief to as many eligible borrowers as quickly and easily as possible,” a department spokesperson said in a statement to NPR, “and this will allow us to achieve that goal while we continue to explore additional legally-available options…”
According to federal data, more than 4 million people still owe commercially held FFEL loans. An administrative office that spoke to NPR said roughly 800,000 borrowers could now be excluded from relief.
Roughly 1.5 million FFEL borrowers also have direct loans, which are loans through the federal government. By making FFEL loans ineligible for consolidation, those borrowers are now getting less forgiveness than they were promised.
FFEL borrowers who applied for their loans to be consolidated into direct loans before Sept. 29 will still be eligible for one-time debt relief.
FFEL loans were issued and managed by private lenders but guaranteed by the federal government. The program was discontinued in 2010.
Perkins Loans are low-interest federal loans for students with exceptional financial need. The ED classifies financial need as the difference between the cost of attendance and expected family contribution. These loans are distributed by the university.
These loans are also no longer given. Final disbursements were allowed through June 2018.
Legal experts speculate that the federal student debt relief policy was changed to prevent private banks that manage old FFEL loans from filing lawsuits citing financial harm.
When FFEL borrowers consolidate their loans into direct loans, those banks lose the long-term profits they would have seen from interest payments and repaid loans.
The same day the ED changed their eligibility guidelines, six Republican-led states sued to block Biden’s plan using that same argument, according to NBC News. Those states were Arkansas, Iowa, Kansas, Missouri, Nebraska and South Carolina.
“The consolidation of [Higher Education Loan Authority of the State of Missouri] FFEL loans harms the entity by depriving it of an asset that it currently owns,” the complaint said.
This isn’t the only hurdle Biden’s plan has faced. The Congressional Budget Office has estimated that Biden’s plan to forgive federal student debt would cost the government about $400 billion.
The ED did its own estimate averaging the program at $30 billion annually for the next decade and $379 billion over the program’s lifespan of at least three decades.
The ED’s estimates are based on assumptions about future economic conditions and participation rates, among other criteria.
The estimate also assumes that only 81% of eligible borrowers will take advantage of federal student loan forgiveness.
According to the ED, nearly 90% of relief dollars will go to those earning less than $75,000 per year, and the top 5% of earners will not benefit.
The ED is currently reviewing options and discussing with private lenders to find a way to offer those carrying FFEL loans relief as well.
Eligible borrowers have until Dec. 31, 2023, to apply for federal student debt relief. The current pause on loan repayments will end in Jan. 2023.