The Loan Arranger Heads For The Hills

As Republican Attorneys General in six states are suing the Biden Administration over student loan relief, the Department of Education is drastically cutting back on who qualifies for the program because of fears it will be eliminated altogether by the Supreme Court.

In a remarkable reversal that will affect the fortunes of many student loan borrowers, the U.S. Department of Education has quietly changed its guidance around who qualifies for President Biden's sweeping student debt relief plan.

At the center of the change are borrowers who took out federal student loans many years ago, both Perkins loans and Federal Family Education Loans. FFEL loans, issued and managed by private banks but guaranteed by the federal government, were once the mainstay of the federal student loan program until the FFEL program ended in 2010.

Today, according to federal data, more than 4 million borrowers still have commercially-held FFEL loans. Until Thursday, the department's own website advised these borrowers that they could consolidate these loans into federal Direct Loans and thereby qualify for relief under Biden's debt cancellation program.

On Thursday, though, the department quietly changed that language. The guidance now says, "As of Sept. 29, 2022, borrowers with federal student loans not held by ED cannot obtain one-time debt relief by consolidating those loans into Direct Loans."

An administration official tells NPR this change will not affect all 4 million borrowers with commercially-held FFEL loans. The official said many FFEL borrowers also have Direct Loans and so can still qualify to consolidate those FFEL loans, though that detail was not included in the department's updated guidance.

Ultimately, this administration official says, roughly 800,000 borrowers would be directly affected.

It's unclear why the department reversed its decision on allowing FFEL borrowers with commercially-held loans to consolidate and then qualify for debt relief.

In a statement to NPR, a department spokesperson says, "Our goal is to provide relief to as many eligible borrowers as quickly and easily as possible, and 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. Borrowers with privately held federal student loans who applied to consolidate their loans into Direct Loans before September 29, 2022 will obtain one-time debt relief. The FFEL program is now defunct and only a small percentage of borrowers have FFEL loans."

The tell in that statement is "legally-available."

Multiple legal experts tell NPR the reversal in policy was likely made out of concern that the private banks that manage old FFEL loans could potentially file lawsuits to stop the debt relief, arguing that Biden's plan would cause them financial harm.

When FFEL borrowers consolidate their old loans into federal Direct Loans, these private banks essentially lose business. If these banks' financial health depends, at least in part, on the assumption that they would be holding and profiting from these debts over the long-term, then losing borrowers to Biden's debt relief plan could, possibly, constitute harm.

In fact, a new lawsuit filed Thursday by six state attorneys general, makes this very argument. One of the plaintiffs, Missouri, is home to MOHELA, which manages both federal Direct Loans and these old FFEL program loans.

"The consolidation of MOHELA's FFELP loans harms the entity by depriving it of an asset (the FFELP loans themselves) that it currently owns," says the complaint. "The consolidation of MOHELA's FFELP loans harms the entity by depriving it of the ongoing interest payments that those loans generate."

 

As I mentioned on Wednesday, the issue is standing. In order to sue the government over government policy, you have to show that you are being directly and negatively affected by that policy. Banks being out billions like this definitely seems like something that qualifies, and yes, I expect the courts will side with the banks and the GOP, and this program will end up in the scrap heap.

The people who told you "Biden can cancel all student debt with a stroke of a pen" didn't bother to add "and would be sued for damages and lose in the courts".

Republicans are more than happy to force you to pay back your student loans, too.  They care about banks, not people.

Might want to keep that in mind.