Do You Still Qualify for Student Loan Relief? New Exclusions Added

Many student loan borrowers have been looking forward to collecting their $10,000-$20,000 refund. However, the U.S. Department of Education has now quietly begun changing the qualifications for student loan relief.

Perkins and FFEL Loans

Much of the change centers around people who took out federal loans years ago. People with Perkins and FFEL loans are now in danger of losing their guaranteed refund. Until yesterday, the department's website said that these borrowers could consolidate the loans into Direct Federal loans and, therefore, would qualify for relief.

However, yesterday the department changed the language. The guidance now reads:

“As of Sept. 29, 2022, borrowers with federal student loans not held by ED cannot obtain one-time debt relief by consolidating those loans into Direct Loans.”

Administration officials say that this will not affect all 4 million borrowers who have commercially-held FFEL loans. An official stated that many FFEL loan borrowers also have Direct Loans and can therefore still qualify. This detail was left out of the updated guidance.

The official did admit that around 800,000 borrowers would be affected by this change.

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Why the Change?

It is still unclear why the government decided to make these changes. A department spokesperson had this to say regarding FFEL loans and debt relief eligibility:

“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. Borrowers with privately held federal student loans who applied to consolidate their loans into Direct Loans before September 29, 2022 will obtain one-time debt relief. The FFEL program is now defunct and only a small percentage of borrowers have FFEL loans.”

Multiple experts have said they think the change came about because of concern that the private banks that manage the old FFEL loans would file lawsuits to halt debt relief. When FFEL borrowers consolidate their loans into federal Direct Loans, the private banks lose business.

Private banks could argue that their financial health depends on holding and profiting from these loans and that Biden's relief plan could cause them financial harm.

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Let the Lawsuits Begin

Six attorneys general have already filed a lawsuit making this exact argument. One of the plaintiffs, Missouri, is home to MOHELA. MOHELA manages both federal Direct Loans as well as old FFEL loans. The complaint reads:

“The consolidation of MOHELA's FFELP loans harms the entity by depriving it of an asset (the FFELP loans themselves) that it currently owns. The consolidation of MOHELA's FFELP loans harms the entity by depriving it of the ongoing interest payments that those loans generate.”

True Colors

Persis Yu of the Student Borrower Protection Center has this to say about impending loan-related lawsuits:

“FFEL lenders have shown their true colors. Instead of working in the interest of student loan borrowers – their customers – these lenders are holding hostage relief to millions of borrowers in order to keep making a buck off of borrowers suffering.”

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