Student loan forgiveness was ‘dangling in front of us’: How 700,000 loans were cut from Biden’s plan


Michael Christofield was thrilled when he learned he was eligible for $10,000 in student loan forgiveness under President Joe Biden’s new plan. Getting rid of the debt would help her pay off her loans by the time her children go to college.

“I would be in a position to help in a way that my parents couldn’t help me,” he said.

But before the app could be launched, the Biden administration abruptly scaled back the program. As a result, an estimated 700,000 people with a certain type of federal loan — including Christofield — lost their right to debt relief.

“It was hanging in front of us,” Christofield, 43, said.

The move has affected borrowers with older federal loans that, through no fault of their own, have been replaced by private lenders instead of the government. The loans are in the middle of a court case, Challenging the legality of Biden’s debt relief program.

Biden administration officials have repeatedly said they are evaluating alternative ways to provide relief to those borrowers, but applications for the program officially opened Monday without any updates.

The administration is “moving as quickly as possible to provide relief to as many people as possible,” Education Secretary Miguel Cardona said at a news conference Monday.

The eligibility change announced on September 29 excluded federal student loans that are guaranteed by the government but held by private borrowers.

Many of these loans were made under the Federal Family Education Loan, known as FFEL, and the Federal Perkins Loan program.

In general, borrowers had no choice whether to take out a federal loan from the government or a private lender. The FFEL program ended in 2010, so borrowers who took out loans after that date will have Direct Loans eligible for debt relief. Often, FFEL and Perkins loans are issued by the same companies that issue federal Direct Loans.

The federal government bought some FFEL program loans during the Great Recession. But about 4 million of the 43 million federal loan borrowers have an FFEL loan owned by a private lender, even though not all of those people were initially eligible for the loan forgiveness plan, which also requires income.

Calculating how many of these loans were eligible is based on income assumptions, as well as how many would apply for relief. The Biden administration has said about 700,000 people have lost eligibility.

Many borrowers with private federal loans feel like they continue to get the short end of the stick. Their loans are also exempt from the pandemic-related suspension of payments and interest that began in March 2020.

Some borrowers with private federal loans could still be forgiven under Biden’s plan. But they had to apply to consolidate the loans into federal direct loans by Sept. 29, about five weeks after the program was announced.

Paulo Calderon said he immediately thought about consolidating his FFEL loans to qualify for debt relief. But when she called her loan servicer, it wasn’t clear whether consolidation was the best option for her.

“I was told the truth that there was no guarantee that consolidating would get me into loan forgiveness,” said Calderon, 45, who owes about $26,000 in student debt.

There are risks of consolidation. He could raise her interest rate, increasing the amount she owes each month. Additionally, the application for debt relief had not yet started and the Biden administration said borrowers would have until December 2023 to apply.

Calderon continued to investigate and tended to consolidate, but did not take action until he read a news release on September 29 about the change in eligibility. That day he called his service again, but it was too late to strengthen him.

“It was so disappointing. I was like, ‘This can’t happen,'” Calderon said.

The Biden administration changed eligibility criteria on the same day six GOP-led states sued, saying the president lacks the legal authority to eliminate student debt.

States also argued that student loan servicers — including the Missouri State Senior Loan Authority, known as MOHELA — are financially hurting Biden’s student loan forgiveness plans. The case argued that the plan creates an incentive for borrowers to consolidate MOHELA-owned Federal Family Education Loans into government-owned Direct Loans, “depriving (MOHELA) of ongoing income from servicing those loans,” according to the lawsuit.

By excluding these borrowers from the program, the Biden administration likely weakened the plaintiffs’ argument.

On Thursday, the judge dismissed the case, saying the states lacked legal standing to appeal. The states immediately appealed, sending the case to the 8th Circuit Court of Appeals, where it is likely to face a panel of conservative judges.

Under Biden’s plan, borrowers who earned less than $125,000 in 2020 or 2021 and spouses or heads of household who earned less than $250,000 a year in those years will receive up to $10,000 in federal student loan debt.

If a qualified borrower also received a federal Pell grant while enrolled in college, the individual is eligible for up to $20,000 in debt forgiveness.

Includes federal direct loans, subsidized loans, unsubsidized loans, parent PLUS loans and graduate PLUS loans.

While borrowers with FFEL and Perkins loans have they have continued to pay their bills on time they remain ineligible, they have defaulted on federal loans they are eligible under any program.

The apology petition can be found online here.