Change to student debt forgiveness plan could disqualify some Kentucky borrowers
A change to the fine print of President Joe Biden’s student debt forgiveness plan may mean fewer Kentucky borrowers qualify for the relief the administration announced in August.
The change pertains to more than 4 million student borrowers nationwide with Federal Family Education Loans issued and managed by private banks, but ultimately backed by the federal government.
After a recent move by the U.S. Department of Education to quietly change its guidance, NPR reports roughly 800,000 such borrowers will now be excluded from the student debt relief program.
“That has made things even messier,” said Erin Klarer, who has been working to navigate the ever-shifting guidance from the federal government.
Klarer directs government relations and communications for Kentucky’s Higher Education Assistance Authority and its Student Loan Corporation, and she worries the change will only sow more frustration among borrowers unclear about whether they qualify for student debt forgiveness.
“It’s only going to make people more confused and more angry,” Klarer said, adding her organization has already fielded many calls from borrowers demanding their debt payments be canceled. “We were telling people, ‘just hang tight.’”
Here’s what to know about the change, including how to check if your loans are now exempt from student debt forgiveness.
Which types of student loans are eligible for forgiveness?
Up until recently, the U.S. Department of Education advised borrowers with commercially-held FFEL loans they could consolidate their loans into federal Direct Loans – the funds for which come not from private banks, but the government.
Doing this would make these borrowers eligible for relief under Biden’s plan, since the government owns the loans. But the department quietly changed that language Sept. 29, according to NPR, tweaking it to say instead: “borrowers with federal student loans not held by ED cannot obtain one-time debt relief by consolidating those loans into Direct Loans.”
It’s not entirely clear why the Biden administration made this claim, but according to some legal experts, it’s a move to stave off lawsuits from banks who could make the case they’ve been injured by the debt forgiveness plan.
How many Kentucky student borrowers will be caught up in this?
That, too, is unclear. According to Klarer, the FFEL program has been retired since 2010 and there haven’t been any new loans of the type since that time.
Figures from 2019 compiled by the Student Loan Servicing Alliance project a balance of more than $2 billion owed by Kentucky borrowers on their commercially-held FFELs.
That said, Klarer pointed out many of these types of loans are not tracked by the U.S. Department of Education because they are privately held.
“As of March of this year there are 20,000 known FFEL borrowers that are Kentucky residents,” Klarer wrote in a text message to the Herald-Leader. “The real number may be double or triple that.”
Klarer added that almost 18,000 of those 20,000 borrowers “are with us here at the KHESLC.”
Those borrowers who consolidated their loans in federal Direct Loans before the change was made on Sept. 29 will still be eligible for forgiveness, depending on their income and other requirements laid out by the Biden’s administration’s plan, CBS News reports.
How can you tell if your loans are privately held?
Klarer advised borrowers to go online to studentaid.gov and log-in to check on the status of your loans.
“If you have student loans, and they’re not showing up on the federal site that means they’re private,” Klarer said.
You can also check via the National Student Loan Data System, Klarer added.
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