Student loan forgiveness was ‘dangled in front of us:’ How 700,000 borrowers were cut out of Biden’s plan

By Katie LoboscoCNN

Michael Christofield was thrilled when he found out he was eligible for $10,000 student loan forgiveness under President Joe Biden’s new plan. Debt relief would help pay off his loans by the time his children go to college.

“I would be in a position to help them in a way that my parents couldn’t help me,” he said.

But before the app launched, the Biden administration abruptly scaled back the program. As a result, approximately 700,000 people with certain types of federal loans, including Christofield, lost eligibility for debt relief.

“He was hanging in front of us,” Christofield, 43, said.

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The move affected borrowers with older federal loans that, through no fault of their own, are held by private lenders rather than the government. The loans are at the center of a lawsuit making its way through the courts, challenging the legality of Biden’s debt relief program.

Biden administration officials have repeatedly said they are evaluating whether there are alternative avenues to provide relief to these borrowers, but application for the program officially opened Monday without any updates.

The administration “is moving as quickly as possible to provide relief to as many people as possible,” Education Secretary Miguel Cardona said at a news conference Monday.

Who is left out?

The eligibility change, announced Sept. 29, excluded federal student loans guaranteed by the government but held by private lenders.

Many of these loans were made under the former Federal Family Education Loan program, known as FFEL, and the Federal Perkins Loan program.

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In general, borrowers did not have the opportunity to choose whether to apply for a federal loan from the government or one from a private lender. The FFEL program ended in 2010, so borrowers who took out loans after that date likely have direct loans that qualify for debt relief. FFEL and Perkins loans are often serviced by the same companies that service Federal Direct Loans.

The federal government purchased some FFEL program loans during the Great Recession. But about 4 million of the 43 million federal loan borrowers still currently have a FFEL loan owned by a private lender, though it’s likely that not all of those people were initially eligible for the loan forgiveness plan, which also includes a requirement from income.

The estimate of how many of those borrowers were eligible is based on assumptions about their income and how many would apply for relief. The Biden administration has said that around 700,000 people lost eligibility.

Many borrowers with private federal loans feel that they continue to fall short. Your loans also don’t qualify for the pandemic-related payment and interest pause that began in March 2020.

Borrower frustration: ‘This can’t be happening’

Some borrowers with private federal loans may still qualify for forgiveness under Biden’s plan. But they must have applied to consolidate their loans into Federal Direct Loans by September 29, about five weeks after the program was announced.

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Paulo Calderón said he immediately considered consolidating his FFEL loans to qualify for debt relief. But when he called his loan servicer, it wasn’t clear if consolidation was the best option for him.

“They actually told me there was no guarantee that consolidation would qualify me for loan forgiveness,” said Calderon, 45, who has about $26,000 in student debt.

There are risks to consolidation. It could have increased your interest rate, raising the amount owed each month. Additionally, the debt relief application had not yet been released and the Biden administration said borrowers would have until December 2023 to apply.

Calderón continued to investigate and was leaning toward consolidation, but took no action before reading a news article on September 29 about the change in eligibility. He called the manager back for him that day, but it was too late to consolidate.

“It was very frustrating. I thought, ‘This can’t be happening,'” Calderon said.

Why are some loans treated differently?

The Biden administration changed the eligibility criteria the same day that six GOP-led states filed suit, alleging the president does not have the legal authority to write off student debt.

The states also argued that student loan servicers, including the Missouri State Higher Education Loan Authority, known as MOHELA, are financially harmed by Biden’s student loan forgiveness plan. The lawsuit argued that the plan creates an incentive for borrowers to consolidate MOHELA-owned Federal Family Education Loans into government-owned Direct Loans, “depriving them (MOHELA) of the ongoing income it earns from servicing those loans,” according to demand. .

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By excluding these borrowers from the program, the Biden administration likely weakened the plaintiffs’ argument.

On Thursday, the judge dismissed the case, ruling that the states did not have the legal standing to bring the challenge. The states immediately appealed, sending the case to the 8th Circuit Court of Appeals, where it is likely to face a panel of conservative judges.

Who still qualifies for debt relief?

Under Biden’s plan, eligible individual borrowers who earned less than $125,000 in 2020 or 2021 and married couples or heads of households who earned less than $250,000 annually in those years will see up to $10,000 of their federal student loan debt forgiven. .

If a qualified borrower also received a Federal Pell Grant while enrolled in college, the individual is eligible for up to $20,000 of debt forgiveness.

Federal Direct Loans, including Subsidized Loans, Unsubsidized Loans, Parent PLUS Loans, and Graduate PLUS Loans, are eligible.

While FFEL and Perkins borrowers who have continued to pay their bills on time remain ineligible, delinquent federal loans taken out under either program are eligible.

The waiver application can be found online here.

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