RICHMOND — Questions remain as to how many borrowers in Virginia no longer qualify for federal student loan forgiveness under new eligibility requirements for President Biden’s debt cancellation program.
On September 29, the U.S. Department of Education changed the guidance on its website to say that “borrowers with federal student loans not held by ED cannot obtain one-time debt relief by consolidating those loans into Direct Loans.”
The policy shift primarily impacts borrowers who took out federal student loans through Perkins and Federal Family Education Loans, both of which were discontinued years ago. These commercial loans were guaranteed by the federal government but issued and managed by schools or private companies, and therefore do not qualify for forgiveness.
Prior to the change in guidance, borrowers could have consolidated these loans into federal Direct Loans in order to qualify for relief, but that’s no longer an option as of Sept. 29.
Roughly 800,000 borrowers across the country will be excluded from relief under the new policy, an administration official told NPR last month.
What that means for the commonwealth isn’t clear. Over a million borrowers in Virginia collectively have $43 billion in outstanding federal student loans, according to the Federal Student Aid website, which is operated by the federal government. But the U.S. Department of Education would not confirm with The Virginia Mercury how many borrowers in the state with unconsolidated FFEL and Perkins loans no longer qualify for forgiveness, although a spokesperson said “only a small percentage of borrowers have FFEL loans.”
“Our goal is to provide relief to as many eligible borrowers as quickly and easily as possible,” the spokesperson wrote. “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.”
For borrowers in Virginia who qualify for forgiveness, the timeline for when to apply for the debt cancellation program is less certain.
Six Republican-led states filed a lawsuit last month challenging the legality of the policy and are asking the court to grant a preliminary injunction, which could halt student loan forgiveness until the judge issues a final ruling on the case.
The U.S. Department of Education changed its eligibility policy to exclude borrowers with commercial federal loans the same day the lawsuit was filed.
“We understand that the department is reviewing its legal options with regard to the eligibility of FFEL loans that are privately held,” said Karen McCarthy, a vice president with the National Association of Student Financial Aid Administrators, in an email. “However, this change adds a layer of complexity to an already nuanced initiative and creates more confusion for borrowers. While we can’t speculate on ED’s legal authority, we look forward to the final answer so borrowers can have clarity as soon as possible.”
The Biden administration released a preview of the student loan debt relief application form this week for the program, which aims to forgive up to $20,000 in debt for millions of borrowers nationwide.
A district judge held a hearing on the motion for the injunction on Wednesday and said the attorneys would hear from him soon regarding a decision.
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