A change in the rules for the Student Debt Relief happened sometime Wednesday, 9/29, due to a modification on the program’s FAQ webpage. The Department of Education reacts to a new lawsuit by some state attorney generals whose state organizations and pensions could be affected by the forgiveness program. Under the new rule, many FFEL and Perkin Borrowers will not qualify for Student Debt Relief Forgiveness.
NPR was the first to discover the change listed on the StudentAid.gov website. Their article explains the timing and process of how the Department of Education changed the FAQ.
Initial estimates are it will affect approximately 4 million borrowers who have non-federal FFEL and Perkin loans. These loans are only federally guaranteed and not owned by the federal government but by private banks and other lenders. The lawsuit stated this action would harm these financial institutions due to the early payoff of these loans.
The FFEL program ended in 2010.
Only borrowers who consolidated these FFEL and Perkin loans to Direct Federal Loan before 9/29/2022 will qualify for the one-time Forgiveness Program.
Partial Forgiveness Possible
Many borrowers who have FFEL loans also have Direct Loans. As an example, a borrower could have federal loans totaling $30,000. The breakdown is $20,000 of Direct Loans and $10,000 of FFEL loans. Under this new rule, only the Direct Loans would be forgiven, and the borrower would have a remaining balance of $10,000 that would need to be repaid. This assumes that the borrower also had Pell grants and qualified under the income limits.
It is still a great opportunity but not as good as initially described.
This change is not affecting the PSLF Limited Waiver program since this is different. Under the PSLF Limited Waiver program, FFEL and Perkin Borrowers can still qualify. Borrowers need to start their consolidation and submit their employment verification by 10/31/2022.
Additional Lawsuit Filed and Other Hurdles
This week we also saw an additional lawsuit submitted. As we described in our Student Debt Relief article, this program will have some legal and cost hurdles to jump before it happens. You should anticipate additional changes and possible delays.
Early this week, the CBO did its cost estimate for the forgiveness portion of the program. It is estimated to be over $430 billion. The White House’s initial estimate was $240 billion for the entire program. The CBO estimate did not include the change in the IDR 5% plan, which could be the most expensive part of the executive order.
Through our newsletter and alerts, we hope to help borrowers and financial professionals keep up to date on the changes related to student loan repayment, forgiveness, and college funding.