Millions of borrowers barred from student loan forgiveness

After millions of people celebrated the announcement of federal student loan forgiveness, some are now finding that excitement taken away.

In a change released Thursday, the Federal Student Aid Website States that public student loans not held by the Department of Education, such as the Federal Family Education Loan (FFEL) or Perkins Loans, are not eligible to receive a one-time discount.

Here’s what you need to know.

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Select student borrowers excluded from forgiveness

Until today, those who had FFEL and Perkins loans had the option of consolidating their student loans into direct loans owned and managed by the Department of Education. In an abrupt decision, borrowers who have not consolidated may no longer be eligible for student loan forgiveness.

The move is likely to stem from two legal challenges filed in court against the Biden administration’s federal student loan forgiveness initiative. Both focus on one keyword: harm.

The two complaints, one of a individual citizen and another from a group of Republican states – both focus on the “harm” they will suffer from widespread forgiveness. And this hasty decision seems to reflect the same theme.

FFEL and Perkins loans are slightly different from other federally backed student loans because they are owned by private banks, but guaranteed by the government. Banks earn revenue from servicing and maintaining these loans. So if the loans are cancelled, the banks will lose that income. And if that happens, legal experts suggest the banks could sue and claim they have been “aggrieved” by the Biden administration’s student loan forgiveness initiative.

The FFEL program ended in 2010, but still serves about four million borrowers and holds about 7% of the total federal student debt portfolio, or about $113 million according to Federal Student Aid Data.

What Borrowers Should Do

If your loans are FFEL or Perkins loans and have not been consolidated into direct federal loans, the chances of getting forgiven may be slim.

The Federal Student Aid website states: “[The Department of Education] assesses whether there are other avenues to relieve borrowers with federal student loans not held by [The Department of Education]including FFEL program loans and Perkins loans, and is discussing this with private lenders.”

If you currently have any type of federal student loan, including FFEL or Perkins loans, you are strongly advised to pay close attention to any correspondence from your loan officer, as well as your payment portal for additional information and updates.

If keeping your student loans with the federal government is no longer right for you, you might consider refinancing your student loans after the repayment moratorium ends in January 2023. If you refinance your federal student loans, you lose federal protections that could exclude you from the future student loan forgiveness, but it may allow you to get a lower interest rate and better terms on your current student loan.

Here are some of our favorite private student lenders for refinancing:

SoFi Student Loan Refinance

  • Cost

    No origination fees to refinance

  • Eligible loans

    Federal, private, graduate and undergraduate loans, Parent PLUS loans, medical and dental residency loans

  • Types of loan

  • Variable rates (APR)

    From 2.49% (rates include 0.25% autopay discount)

  • Fixed rates (APR)

    From 3.99% (rates include 0.25% autopay discount)

  • Loan conditions

  • Loan amounts

    From $5,000; more than $10,000 for residential medical/dental loans

  • Minimum credit score

  • Minimum income

  • Authorize a co-signer

Student Loan Financing Student Loan Refinancing

  • Cost

    No origination fees to refinance

  • Eligible loans

    Federal, Private, Graduate and Undergraduate Loans, Parent PLUS Loans

  • Types of loan

  • Variable rates (APR)

    From 1.86% (rates include automatic payment discount)

  • Fixed rates (APR)

    From 3.99% (rates include automatic payment discount)

  • Loan conditions

    From 5 to 20 years for the refinancing of student loans; 5, 7 or 10 years for the refinancing of the parental loan

  • Loan amounts

  • Minimum credit score

  • Minimum income

  • Authorize a co-signer

Laurel Road Student Loan Refinance

  • Cost

    No origination fees to refinance

  • Eligible loans

    Federal, private, graduate and undergraduate loans, Parent PLUS loans, medical and dental residency/scholarship loans, as well as special prices and reduced rates for medical professionals (doctors, dentists, optometrists and assistants medical)

  • Types of loan

  • Variable rates (APR)

    Starting at 2.50% (rate includes 0.25% autopay discount and does not assume any Laurel Road Checking related discount)

  • Fixed rates (APR)

    Starting at 3.99% (rate includes 0.25% autopay discount and does not assume any Laurel Road Checking discount)

  • Loan conditions

    5, 7, 10, 15, 20 years (but also offers any term less than 20 years, subject to underwriting criteria)

  • Loan amounts

    For bachelor’s degrees and above, minimum $5,000; for eligible associate’s degrees in healthcare, up to $50,000 in loans for non-ParentPlus refinance loans

  • Minimum credit score

  • Minimum income

  • Authorize a co-signer

Editorial note: Any opinions, analyses, criticisms or recommendations expressed in this article are those of Select’s editorial staff alone and have not been reviewed, endorsed or otherwise endorsed by any third party.

About Kristina McManus

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