Biden Admin Quietly Makes Reversal on Student Loan Forgiveness Program, Scales Back Eligibility

President Joe Biden announces student loan relief in the Roosevelt Room of the White House on Aug. 24, 2022. Olivier Douliery/AFP via Getty Images

The Biden administration quietly issued an update to its student loan forgiveness plan on Sept. 29, drastically scaling back eligibility, on the same day that six Republican-led states filed a lawsuit against President Joe Biden, claiming the plan is illegal.

As of Sept. 29, borrowers who have federal student loans that are owned by private entities and not by the Department of Education will no longer qualify for the relief program.

Previously, the administration had said those borrowers with student loans owned by private entities, many of which were made under the former Federal Family Education Loan (FFEL) program and Federal Perkins Loan program, would qualify for relief of up to $10,000 or $20,000 in loan forgiveness, as long as the borrower consolidated his or her debt into the federal Direct Loan program.

The guidance now states, “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.”

More than 4 million student loan borrowers have privately held loans through the FFEL Program, according to NPR.

“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,” the Department of Education said in an emailed statement to CNN.

Activists rally outside the White House on July 27, 2022, to call on President Joe Biden to cancel student loan debt. It turns out student loans cost taxpayers much more than the Government Accountability Office estimated. Anna Moneymaker/Getty Images

‘Highly Uncertain Assumptions’

“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. This is a completely different program than Direct Loans,” the statement said.

Biden announced in August that he plans to cancel up to $20,000 in federally held student debt for individuals making less than $125,000 per year or married couples who earn less than $250,000 per year in 2020 or 2021.

The Department of Education estimates the program will cost $379 billion, or about $30 billion a year over the next 10 years, although those estimates are based on “highly uncertain assumptions about future economic conditions and participation rates.”

Separately, the Congressional Budget Office, a federal agency, estimated the cost to be more than $400 billion over the next 30 years.

Approximately 43 million people are eligible for the relief, administration officials had previously said.

The drastic update came as a group of six GOP attorneys general filed a lawsuit against Biden and Education Secretary Miguel Cardona on Sept. 29 to block the loan forgiveness program.

The states of Arkansas, Iowa, Kansas, Missouri, Nebraska, and South Carolina, in a lawsuit filed in federal court in Missouri, claimed that the move is illegal.

White House officials have argued that Biden’s student loan forgiveness plan is legal under the Higher Education Relief Opportunities for Students (HEROES) Act of 2003, which grants the Department of Education the authority to cancel so much debt for so many people because of the COVID-19 pandemic.

Arkansas Attorney General Leslie Rutledge speaks during a press conference at the Department of Justice in Washington on Feb. 27, 2018. Toya Sarno Jordan/Getty Images

Debt Relief Program ‘Economically Unwise’

Specifically, the law enables the education secretary to “waive or modify any statutory or regulatory provision applicable to the student financial assistance programs ... in connection with a war or other military operation or national emergency.”

Yet, as well as being “economically unwise and downright unfair,” the attorneys general stated in their lawsuit that the Education Department had previously concluded that the HEROES Act is “not a hidden source of authority to cancel student debt.”

The Biden administration itself concluded in a legal opinion (pdf) that any cancellation must be “structured to put loan recipients back into the financial position they would be in were it not for the national emergency” and limited only to the harm that has a relation to the borrower’s federal loans, “no matter how much [total] financial harm a borrower may have suffered because of a national emergency,” the suit states.

“The Biden Administration’s Mass Debt Cancellation does not even attempt to meet these requirements. It instead justifies relief for all borrowers whose debt the Administration holds based on talismanic reference to the COVID-19 pandemic. It makes no difference to the Administration’s cancellation whether the pandemic rendered a borrower better or worse off or how much financial harm the borrower suffered in relation to her loans,” the suit reads.

“Thus, the Mass Debt Cancellation is not remotely tailored to address the effects of the pandemic on federal student loan borrowers, as required by the HEROES Act.”