President Biden’s student loan forgiveness plan was abruptly updated on Thursday to exclude borrowers with privately held federal student loans, according to Education Department guidance.
As of Thursday, borrowers with federal student loans not held by the Education Department are no longer eligible to obtain one-time debt relief by consolidating those loans into Direct Loans, the guidance said.
The department said only borrowers in the Federal Family Education Loan (FFEL) program whose loans are held by the federal government are eligible. The FFEL program, which stopped issuing loans in 2010, was a student loan system that had private banks manage the loans but were guaranteed by the federal government.
Borrowers with privately-held FFEL Program loans and Perkins Loans who had applied to consolidate into the Direct Loan program before Thursday — when the administration abruptly updated its guidance — are still eligible for one-time debt relief through the Direct Loan program.
The Education Department also said it is “assessing whether there are alternative pathways 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.”
Over 4 million student loan borrowers have privately-held FFEL loans, according to NPR.
Biden’s student loan forgiveness plan is set to forgive $10,000 in federal student loan debt for borrowers earning under $125,000 and $20,000 for borrowers who received Pell Grants.
Earlier this week, the Congressional Budget Office (CBO) reported that the plan will cost about $400 billion. It also projected that 90 percent of income-eligible borrowers will apply for debt cancellation.
The White House pushed back on the report, saying it’s unlikely that 90 percent of eligible borrowers will take advantage of the program.
Biden’s plan also faced the first of its legal challenges this week.
Six Republican-led states filed a lawsuit on Thursday against the administration in the U.S. District Court for the Eastern District of Missouri, arguing the proposal as unlawful because there is no statute from Congress authorizing the cancellation of student loan debt.
Earlier this week, the public interest firm Pacific Legal Foundation (PLF) filed a lawsuit against the administration, challenging it through a plaintiff who is currently paying off loans and would be subject to an expensive tax in the event of debt relief because he lives in Indiana, one of several states that considers debt cancellation taxable income.
The White House has cited the Heroes Act to justify the forgiveness program when pressed on how it will uphold in court against legal challenges.
The act allows the Education Department to waive or modify statutes or provisions related to student financial assistance programs during war or national emergencies, with the COVID-19 pandemic being a justification for debt cancellation.