Biden administration revises student loan forgiveness for some borrowers

The Biden administration has reversed course on one aspect of its student debt relief plan. (one)

The Department of Education has changed its guidance on who qualifies for President Joe Biden’s student loan forgiveness plan.

In late August, Biden forgiven $10,000 in student loan debt per borrower and $20,000 in student debt for those using Pell Grants to attend college. The termination applies to all federal student loan borrowers who, according to the administration, earn less than $125,000 per year or $250,000 per year for married couples.

“Consistent with my campaign pledge, my administration is announcing a plan to give working-class and middle-class families breathing space as they prepare to resume federal student loan payments in January 2023,” Biden said said in a tweet.

However, late last week the department changed how the plan applied to borrowers with Perkins loans and Federal Family Education Loans (FFEL). Before these programs ended in 2010, borrowers could take out Perkins Loans and Federal Family Education Loans (FFELs), which were guaranteed by the federal government but issued and administered by private banks.

The Department of Education’s guidance was that these borrowers could convert their loans into a direct loan to qualify for student loan forgiveness. However, the Ministry’s change said that was no longer the case.

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“As of September 29, 2022, borrowers on federal student loans not held by ED cannot receive one-time debt relief by consolidating those loans into direct loans,” the department’s guidelines read. “ED is evaluating alternative avenues to provide relief to borrowers on government student loans not held by ED, including FFEL program loans and Perkins loans, and is discussing this with private lenders.”

Borrowers who applied before Sept. 29 to consolidate their loans into the direct lending program are still eligible for a loan forgiveness, the department said. About 4.1 million federal borrowers have student loans held by private lenders, Politico reported, citing recent federal data.

If you have personal student loans that are not eligible for student loan forgiveness, you may consider refinancing your loans at a lower interest rate, thereby reducing your monthly payments. Visit Credible to find your personalized interest rate without hurting your credit score.

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Attorneys general file lawsuit over student debt relief plan

Six attorneys general recently filed a lawsuit against the Biden administration and its mass student debt forgiveness.

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Given the Department of Education’s original guidance on how borrowers with FFEL and Perkins loans could receive student loan forgiveness, the lawsuit alleged that the guidance would prompt borrowers to refinance their current loans en masse.

“The consolidation of MOHELA’s FFELP loans harms the company by depriving it of an asset (the FFELP loans themselves) that it currently owns,” the lawsuit reads. “The consolidation of MOHELA’s FFELP loans harms the company by depriving it of the ongoing interest payments that these loans generate.”

Since private student loan borrowers are not eligible for federal forgiveness plans, another way they could potentially save money is to refinance their loans. Borrowers can visit the credible marketplace to compare multiple student loan lenders at once and choose the one with the best interest rate.

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Biden administration initiates student loan forgiveness process

The Biden administration released its first update on debt relief last week, announcing that 8 million borrowers could be eligible for relief without filing an application or taking further action unless they choose not to. Because the Ministry of Education already has access to the relevant data of these borrowers.

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For others, the department said it will launch an easy-to-fill application in October. Borrowers are not required to upload documentation with their application, and if additional data is needed, the department said it will reach out to borrowers.

Once the application is submitted, most borrowers can expect to have their debt forgiven within six weeks, according to the Department of Education. Because of this, the administration asked borrowers to apply by mid-November to receive their forgiveness before student debt payments begin again in January.

If you have private student loans that don’t qualify for federal student debt relief, refinancing could help you lower your monthly payments. To find out if this is the right option for you, contact Credible to speak to a student loan expert and get all your questions answered.

Do you have a financial question but don’t know who to contact? Email The Credible Money Expert at [email protected] and your question could be answered by Credible in our Money Expert section.

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