Biden administration changes student loan guidelines, as Republican-led states file lawsuit

WASHINGTON, Sept 29 (Reuters) – The Biden administration on Thursday changed its guidelines on who is eligible for federal student loan forgiveness, as seven Republican-led states challenged its student debt forgiveness program.

President Joe Biden said in August that the US government would forgive $10,000 in student loans for millions of indebted former students, fulfilling a promise he made during the 2020 campaign for the White House.

The U.S. Department of Education’s (ED) decision on Thursday affects Federal Family Education Loan (FFEL) borrowers — whose loans were issued and serviced by private banks but guaranteed by the federal government — and does not not allow them to consolidate their loans and qualify for debt relief.

Earlier, the department’s website informed those borrowers that they could consolidate those loans into direct federal loans and get relief.

On Thursday, the department changed the wording to: “Effective September 29, 2022, borrowers with federal student loans not held by ED cannot obtain one-time debt relief by consolidating these loans into direct loans.”

According to federal data, more than 4 million borrowers still have commercially held FFEL loans. An administration official, who declined to be identified, said the change affected 770,000 borrowers.

It was not immediately clear what led to the decision. A spokesperson for the Department for Education said that “our aim is to provide relief to as many eligible borrowers as quickly and easily as possible, and this will allow us to achieve this objective while continuing to explore other options. legally available to relieve borrowers with FFEL private loans.

Betsy Mayotte, president of the Institute of Student Loan Counselors, said the updated guidance is “a punch, to say the least.”

Earlier Thursday, in a lawsuit, the states of Nebraska, Arkansas, Iowa, Kansas, Missouri and South Carolina asked the court for an immediate temporary restraining order suspending the program. student debt relief. The state of Arizona filed a separate lawsuit late Thursday.

White House spokesman Abdullah Hasan said the Biden administration was giving families “wiggle room” while Republican officials in those six states were “carrying out vested interests.”

The lawsuit argued that when FFEL borrowers consolidate their old loans into Federal Direct Loans, private banks essentially lose business.

The lawsuit comes two days after the conservative group Pacific Legal Foundation filed a federal lawsuit seeking to stop Biden’s student loan forgiveness plan, which was rejected on Thursday.

On Monday, the Congressional Budget Office (CBO) said Biden’s plan to forgive some student loan debt would cost $400 billion.

Critics of the plan raised concerns about its inflationary impact, while the White House said it was fiscally justified as the federal deficit was set to shrink by $1.7 trillion over the course of the year. current year compared to the previous year. The smaller deficit is largely due to the end of many COVID-19 aid programs and surprisingly higher incomes.

As of June 30, 43 million borrowers held $1.6 trillion in federal student loans. About $430 billion of that debt will be forgiven, the CBO estimated. The CBO had previously predicted that some of the funds forfeited by Biden’s action would have ultimately been forgiven anyway.

Reporting by Paul Grant and Nandita Bose; Additional reporting by Kanishka Singh; Editing by Deepa Babington and Christopher Cushing

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