Shortly after promising relief from student loans for millions of borrowers, the Biden Administration quietly walked back the plan, limiting eligibility to people holding federally funded loans. For New Jersey’s 1.2 million residents paying back student debt, that means many won’t get the forgiveness they expected.
Initially, the federal government planned to forgive $10,000 in student loan debt for borrowers making $125,000 -or families earning $250,000- per year or less, along with an additional $10,000 in forgiveness for borrowers who received Pell Grants for college. The relief initially applied to students who borrowed money from private entities as well as the US Department of Education. But the DOE changed its guidance on who qualifies for the relief plan, rescinding eligibility for borrowers with federal student loans owned by private entities.
The education department quietly changed the language on its website to state, “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,” the site now reads.
The decision will directly impact about 800,000 borrowers, a Biden Administration official said, and will most significantly impact borrowers with Perkins loans and Federal Family Education Loans (FFEL). FFEL loans, issued by private banks but guaranteed by the federal government, were the mainstay for federal student loans until the FFEL program ended in 2010.
More than 4 million borrowers around the nation still have commercially-held loans from the FFEL program. They represent a portion of the 45 million Americans who owe $1.75 trillion in student loan debt as of August, according to the Federal Reserve Bank of St. Louis.
It’s not yet clear how many New Jerseyans the Biden administration’s change of plans will impact. The Garden State has about 1.2 million borrowers (12.9 percent of New Jersey residents) who owe a combined $42.5 billion in student loan debt. New Jersey borrowers average $35,434 in debt.The policy change came as six Republican attorney generals sued to block the loan forgiveness, arguing that it is illegal and unconstitutional. Since the Biden Administration announced the forgiveness plan last month, they also faced concerns over potential legal challenges from the student loan industry. Student loan relief has represented a contentious issue leading up to the midterm elections. Supporters of relief have argued that the student loan market would boost the economy and aid tens of millions of people who agreed to high-interest loans when they were young. Activists also stress that it would reduce the racial wealth gap. However, critics have stated that loan forgiveness shouldn’t fall on the taxpayers.