Student debt activists gather outside the White House a day after President Biden announced a plan that would forgive $10,000 in student loan debt for those earning less than $125,000 a year in Washington, DC, on August 25, 2022.
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When the US Department of Education announced at the start of the pandemic that federal student loan borrowers could suspend payments, millions of people were quickly unpleasantly surprised only to learn that they did not qualify for the relief.
They were excluded because they had a subset of federal student loans issued before 2010, under what is called the Federal Family Student Loans (FFEL) program. These loans were guaranteed by the government but owned by private companies – and since the Department of Education did not own the debt, its suspension of payments policy did not apply to it.
After President Joe Biden announced last week that he would forgive up to $10,000 to federal student loan borrowers who did not receive a Pell scholarship, which is a type of aid available to low-income undergraduate students, and up to $20,000 for those who did, it was feared that borrowers with corporate-held FFEL loans would again be left out. (Borrowers earning more than $125,000 a year, or married couples or heads of households earning more than $250,000, are also excluded.)
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Fortunately, the Department for Education appears to be trying to find ways to avoid this outcome for the estimated 5 million borrowers who have a commercially held FFEL loan.
“The Biden administration is cutting red tape and saying millions of previously overlooked borrowers will be included in its bold student debt relief plan,” said Ben Kaufman, director of research and investigations at Student Borrower Protection. Center.
Here’s what borrowers need to know.
The federal government began lending to students on a large scale in the 1960s. At the time, however, it did not provide student loans directly. Instead, it guaranteed debt provided by banks and nonprofit lenders under the FFEL program.
This program was scrapped in 2010 after lawmakers argued that it would be cheaper and easier to lend directly to students. Almost 10 millions people still hold FFEL loans, according to higher education expert Mark Kantrowitz.
Today, Kantrowitz said, “about half are held by the US Department of Education and about half by commercial lenders.”
There are two reasons why the government can now hold FFEL loans. When those loans go into default, the private companies that previously held them transfer them to a guarantor agency that manages the debt on behalf of the federal government, Kantrowitz said. The other reason is that the government bought back some of the loans during the 2008 credit crisis.
Borrowers wishing to know where their FFEL loans are held can contact studentaid.gov and log in with their FSA ID. Next, go to the “My Help” tab and find your loan details.
If you’re one of the roughly 5 million borrowers with an FFEL loan held for business, the Education Department tells CNBC that you can call your service agent and consolidate into the direct loan program to qualify. of the cancellation.
There is currently no time limit by which borrowers must do so, a ministry spokesperson said, but there likely will be.
Because all of these developments are so new, your student loan officer may not be aware of this option yet, Kantrowitz said.
Typically, it takes between 30 and 45 days for a consolidation request to be processed, Kantrowitz said.
And be sure to check the status of your request if you haven’t heard back within that time.
The Department of Education will work in the coming months with private lenders to ensure federal student loan borrowers held in commercial businesses can also qualify for a discount, according to a spokesperson.
Those borrowers will have more than a year to apply for the relief once the government’s student loan forgiveness application becomes available, and they don’t need to take action now, the spokesperson said.
Along with announcing Biden’s student loan cancellation, the president also said he would extend the payment pause on federal student loans through the end of December.
Unfortunately, borrowers with commercially held FFELs are still excluded from this relief, Kaufman said.