Student loan debt activists gather outside the White House on Aug. 25, 2022, a day after President Biden announced plans to write off $10,000 in student loan debt for those earning less than $125,000 a year in Washington, DC.
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When the U.S. Department of Education announced at the beginning of the pandemic that federal student loan borrowers could suspend payments, millions were immediately unpleasantly surprised to learn they were ineligible for relief.
They were excluded because they owned a subset of federal student loans made prior to 2010 under what is known as the Federal Home Education Loan (FFEL) program. These loans were guaranteed by the government but owned by private companies. Because the Department of Education did not own the debt, the suspension of payments policy did not apply.
President Joe Biden announced last week that he would allow up to $10,000 for federal student loan borrowers who didn’t receive a Pell Grant, a type of aid available to low-income undergraduates, and up to $20,000 for them. After that, there was concern that borrowers of commercially held FFEL loans would be left behind again. (Rentors earning more than $125,000 a year or couples or heads of household earning more than $250,000 a year are also excluded.)
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Fortunately, the Department of Education appears to be trying to find ways to avoid that outcome for its estimated 5 million borrowers who have commercially held FFEL loans.
“The Biden administration is cutting bureaucracy and claiming that millions of previously overlooked borrowers will be included in a bold student debt relief plan,” said director of research and investigations at the Center for Student Borrower Protection. One Ben Kaufman said.
Here’s what borrowers should know:
‘About half’ of FFEL loans are held commercially
The federal government began providing large-scale student loans in the 1960s. However, it did not offer student loans directly at the time. Instead, it guaranteed debt provided by banks and non-profit lenders under the FFEL program.
The program was scrapped in 2010 after lawmakers argued it would be cheaper and easier to lend directly to students. According to higher education expert Mark Kantrowitz, 10 million People close to me still have FFEL loans.
“About half is owned by the U.S. Department of Education and about half is owned by private lenders,” Kantrowitz said today.
There are two reasons why the government currently holds FFEL loans. When these loans default, Kantrowitz said the private companies that previously owned the loans will transfer them to guarantee agencies that handle the debt on behalf of the federal government. Another reason is that the government bought back some of the loans during his 2008 credit crisis.
Borrowers who want to find out where their FFEL loans are can go to Studentaid.gov and sign in with their FSA ID. Then go to the “My Aid” tab and search for loan details.
Integrating May Help You Qualify For Forgiveness
If you are one of the approximately 5 million borrowers with a commercially held FFEL loan, the Department of Education told CNBC that you can call your servicer to integrate directly into the loan program and benefit from the cancellation. I am told that it is possible.
There is currently no deadline by which borrowers must do this, but there will likely be one.
All of these developments are so new that student loan servicers may not yet know about this option, Kantrowitz said.
If you’re hitting a wall, you might be better off doing the integration directly on the StudentAid.gov website, he said. You must complete the Federal Direct Consolidation Loan Application Form.
Integration can take a month or more
It typically takes 30 to 45 days for a consolidation application to be processed, Kantrowitz said.
Also, if you do not receive a reply within that period, please check the status of your application.
Other forgiveness workarounds may be coming soon
The Department of Education will work with private lenders in the coming months to ensure that commercially held federal student loan borrowers can also benefit from the forgiveness, according to a spokesperson.
These borrowers have more than a year to apply for relief once the government’s student loan forgiveness application becomes available, and there is no need to act now.
Payment suspension continues to exclude some FFEL borrowers
In addition to announcing Biden’s student loan forgiveness, the president also said he would extend the moratorium on federal student loan payments through the end of December.
Unfortunately, borrowers with commercially held FFELs remain ineligible for this relief, Kaufman said.
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