The White House is considering options for private student loan relief to the new loan forgiveness program.
President Biden’s student loan forgiveness program allows the majority of low- and middle-income borrowers to access the debt cancellation plan. It was initially intended for those who received federally held loans, including subsidized and unsubsidized student loans, parent PLUS loans, graduate PLUS loans and defaulted loans initiated before June 22, 2022. Now the administration is assessing whether borrowers with private student loans should also be allowed to qualify for the program.
Less than a month ago, even the possibility of forgiveness for private student loans seemed out of reach. As explained in a CBS News Money Watch article by Matt Richardson, “Theoretically, [Biden] could attempt to have the government wipe out the balance sheets of select private lenders, thus erasing the debt borrowers owe to those individual lenders. But that’s not something that he announced, offered, or even seriously suggested.”
The Federal Family Education Loan (FFEL) program originally issued private student loans that were guaranteed by the Education Department. The department bought about half of the FFEL loans after the program ended in 2010, making them federally held. Approximately five million borrowers still have commercially held FFEL loans that aren’t eligible for federal relief. Many of these borrowers discovered that during the COVID-19 pandemic when they didn’t qualify for the CARES Act student loan repayment pause.
The Department of Education’s Federal Student Aid Office released a fact sheet to help borrowers understand which private student loans are being considered for forgiveness. It states that the department is, “assessing whether to expand eligibility to borrowers with privately owned federal student loans, including FFEL and Perkins Loans.” Perkins loans were subsidized federal student loans, meaning that the federal government paid the loan’s interest while the student was attending college. Perkins loan issuance was based on a student’s financial needs. Perkins loans are no longer available to students, but since they are held by the Education Department, they may be eligible for President Biden’s forgiveness plan.
The fact sheet added, “In the meantime, borrowers with privately held federal student loans, such as through the FFEL, Perkins, and HEAL programs, can receive this relief by consolidating these loans into the Direct Loan program.” Private student loan borrowers who are approved for consolidation will be eligible for relief. What the Education Department is considering is whether to make all such borrowers eligible for relief without having to go through the consolidation process first. Borrowers unsure of what type of student loan they have can log into the U.S. Department of Education’s Federal Student Aid website to access information about their student loans and forgiveness plan eligibility.
Current applicants for the student debt relief plan must earn under $125,000 annually or under $250,000 if married. As it stands now, approximately 43 million federal student loan borrowers can qualify for up to $20,000 in loan forgiveness. While this amount is substantial for some, for others it barely makes a dent in their overall student debt. Because so many college students hold a mix of different types of loans, including private student loans in the forgiveness program could increase debt relief for more borrowers.
If the Education Department fails to extend loan forgiveness to private loan holders, borrowers can look into other loan forgiveness alternatives. For example, those with altruistic professions can apply for student loan forgiveness programs designed for teachers, military personnel, and AmeriCorps/Peace Corps volunteers. Refinancing can potentially provide some relief from the weight of private student loans by lowering interest rates. Student loan consolidation is another option that could result in lower monthly payments, but those eager to obtain relief should be on the lookout for student loan relief scams.