The White House updated President Joe Biden’s student loan debt forgiveness guidelines on Thursday amid constant criticism and opposition from law firms and heads of state.
Biden’s plan offers $20,000 in student loan debt forgiveness for Pell Grant recipients and $10,000 for many other borrowers. There are income limits, and only those who earn up to $125,000 per year individually or those who are part of a household whose total income does not exceed $250,000 are eligible.
But days away from releasing an app in early October For the relief program, the administration said many private borrowers would no longer be eligible under the plan.
What types of student loans are now excluded from the forgiveness program?
Prior to Thursday, borrowers with federally-backed private student loans were eligible for debt forgiveness if they consolidated their loans into the direct lending program.
But under new guidelines, borrowers with Federal Family Education Loan Program (FFELP) or federal Perkins Program loans not held by the U.S. Department of Education will no longer be eligible for one-time debt relief through consolidation. They will only be eligible for the discount if they applied for consolidation before Thursday.
What is an FFELP loan? What is a Perkins loan?
The Federal Family Education Loan Program was a system of private student loans, issued and operated by private banks but subsidized and guaranteed by the federal government, between 1965 and 2010. (A subsidized loan is a loan that does not generate interest while you’re still enrolled in college classes.) A Perkins loan was a low-interest federal student loan for students in financial need, but the program was discontinued in 2018.
How many Oklahomans will be affected by the change in guidelines?
The number of Oklahomans likely affected by the new guidelines for FFELP and Perkins loans is currently unclear. According to earlier White House estimates in September, nearly 454,000 Oklahoma residents could have received student debt relief under Biden’s plan. As of Thursday, nearly 800,000 borrowers nationwide would be barred from aid, officials told NPR.
“As recently as (Wednesday), the (student support) site said it was working on a solution for these borrowers. It’s a punch, to say the least,” Betsy Mayotte, President and Founder of the Institute of Student Loan Counselors, tweeted Thursday.
What are the advantages and disadvantages of credit consolidation?
While loan consolidation might reduce monthly payments and allow for a longer repayment period for some borrowers, others might have lost some benefits with consolidation, such as interest rate discounts, loan reduction discounts, capital or other benefits.
“Many borrowers (FFELP) have interest rate incentives for lenders that they would lose by consolidating, so it made sense for them to wait for the update,” Mayotte tweeted on Thursday. “This is one of the most damaging decisions I’ve seen come out of the (Department of Education) in a long time.”
Why did the White House change its guidelines?
The White House gave no reason for the change in focus of the program’s terms on Thursday. But the overhaul came the same day in several GOP-led states sued the Biden administration against the back-up plan.
Borrowers had been able to consolidate FFELP loans into accounts directly owned by the Department of Education, which would then have given the government the power to forgive borrowers’ debts under Biden’s plan. The states argued that the mass cancellation would lead more borrowers to consolidate their loans, which in turn would hurt private lenders who were earning income from the loans.
“Our goal is to provide relief to as many eligible borrowers as quickly and easily as possible,” a department spokesperson said. “And it will allow us to achieve that goal while continuing to explore other legally available options to relieve borrowers with FFEL loans and private Perkins loans, including whether FFEL borrowers could qualify for debt relief. punctual without the need to consolidate.”
Additionally, the Pacific Legal Foundation sued the Biden administration earlier this week, arguing that Biden’s plan was unconstitutional and would impose an unfair burden on taxpayers. Lawyers from the libertarian-leaning law firm also argued that Biden no longer had a reason to write off student debt as part of ongoing COVID-19 relief efforts since Biden recently said in a statement. 60 Minutes interview that “the pandemic is over”.