This afternoon the Department of Education quietly changed the policy on one-time forgiveness for borrowers with FFEL program loans. The abrupt shift is yet another blow for FFELP borrowers.
While the news is undeniably bad, all hope is not lost. There is a chance that borrowers with commercially-held FFELP loans may still yet get $10,000 or $20,000 of loan cancellation.
This article will explain what changed, why it changed, and what borrowers impacted by the policy should do. Finally, I’ll cover the few nuggets of hope in an otherwise lousy news day.
The Policy Change for FFELP Loan Borrowers
Before today, the official policy of the Department of Education was that privately-held FFELP loans could qualify for the one-time Biden Forgiveness Program.
Under the new policy, these borrowers cannot qualify for loan forgiveness, and they do not have a path to forgiveness.
Here is a screenshot from yesterday:
Today, the language was changed to the following:
While there are many jarring aspects of the policy shift, imposing a deadline without first announcing it seems especially cruel.
A Special Note for federally-held FFELP Borrowers: If you have federally-held FFELP loans, this policy change does not apply to you. Borrowers with federally-held FFELP loans remain eligible for up to $20,000 in loan forgiveness.
If you are unsure if your loan is federally held, the easiest way to tell is through the payment pause rules. During the Covid relief, if you were not required to make payments or charged interest, your loan is federally-held. If you had to make payments, your loan is privately or commercially held.
You can also verify the status of your loan by accessing the database on studentaid.gov.
The Explanation for the Abrupt Policy Change
Today, six states filed a lawsuit challenging Biden’s one-time loan cancellation policy.
The lawsuit raised several arguments, but the one that led to today’s policy changes came from the state of Missouri, home of MOHELA. MOHELA was created by the Missouri legislature in 1981 and operates as a quasi-governmental entity. Notably, MOHELA also is responsible for some commercially-held FFELP loans.
According to the complaint, “[t]he consolidation of MOHELA’s FFELP loans harms the entity by depriving it of the ongoing interest payments that those loans generate.”
In other words, if borrowers consolidate their privately-held FFELP loans, MOHELA loses money.
The significance of this detail goes back to the legal concept of standing. Anyone bringing a lawsuit must meet specific requirements to have the court hear the case. If those requirements are not met, the case gets dismissed.
Turning to student loan cancellation, you can’t sue because you don’t like the law or think it is a waste of money. Standing requires an injury to the party bringing the lawsuit. Some have argued that no party would have standing to challenge a one-time student loan forgiveness program.
If privately-held FFEL loans are eligible for forgiveness by consolidation, the state of Missouri has a very strong standing argument. If the lawsuit clears the standing requirement, a federal judge could prevent Biden’s entire forgiveness program — not just the FFELP forgiveness.
The actions of the Department of Education today are a desperate attempt to ensure that a judge doesn’t block Biden’s forgiveness program. It is the legal equivalent of cutting off a limb to save the body.
Steps for FFELP Borrowers to Get Forgiveness
Unfortunately, there isn’t a quick fix to this situation. You can’t go back in time and submit an application to consolidate yesterday.
The best bet for impacted borrowers is to apply pressure on the federal government. Go to studentaid.gov and file a complaint. Call your elected representatives and let them know that you are unhappy with the FFEL policy change.
The timing of the original student loan forgiveness announcement was clearly aimed at making voters happy before the midterm elections. If people show their outrage over the reversal, it should inspire action.
Right now, negotiations are likely happening between the federal government and FFEL loan servicers. Department of Education lawyers have to figure out a way to cancel FFEL loans without hurting FFEL loan holders. The more pressure voters apply on their elected representatives, the more likely it becomes that a deal is reached to avoid the lawsuit.
Now is the time to get loud and be heard.
If that all fails, it is also possible that the sudden change in rules leads to a borrower lawsuit against the Department of Education. If that day comes, this article will be updated accordingly.
Outside of the political front, there are a lot of loan management decisions for borrowers currently stuck with FFEL loans. Some borrowers may still want to consolidate their FFEL loans.
The Hope for FFEL Forgiveness
The Department of Education statement today makes it clear that they are trying to resolve the FFEL issue:
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.
Without question, this is a setback. However, there is still time for positive developments.
Additionally, the Biden Administration’s track record is pretty good when it comes to helping FFELP borrowers. The Limited Waiver on PSLF allowed many public servants with FFEL loans to get the credit they deserved. Likewise, new legislation will help borrowers with FFELP Spousal Consolidation Loans qualify for IDR repayment and PSLF.
Today’s developments are a clear sign that somebody dropped the ball. However, there is a track record of fixing things for FFELP borrowers and a stated desire to fix this particular issue.
If FFELP borrowers make enough noise about getting misled and excluded, it could inspire yet another fix.