Federal student loans held by private entities — through a program known as the Federal Family Education Loans Program — are a relatively small subset of outstanding federal student loans. It represents just a few million of the 45 million Americans who owe federal student loans.
But the commercial interests surrounding the program — an array of private lenders, guarantors, loan servicers and loan investors — make the federally guaranteed loan program an outsized legal threat to the administration. .
Private lenders and other entities that participate in the federally guaranteed student loan program are widely seen, both inside and outside government, as posing the greatest legal threat to the program.
Many of these companies suffer losses when borrowers convert their private federal student loans into loans held directly by the Department of Education – through a process known as consolidation.
Administration officials said when they announced the debt relief program in August that borrowers with federally guaranteed loans held by private lenders could receive loan forgiveness by consolidating their debt into a new loan made directly by the Ministry of Education.
The agency said Thursday that borrowers who have already taken these steps to receive loan forgiveness will still receive it. But the Ministry of Education said the path is no longer available to borrowers after the new guidance.
“Our goal is to provide relief to as many eligible borrowers as quickly and easily as possible, which will enable us to achieve this goal while continuing to explore other legally available options to provide relief to borrowers with private FFEL loans. and Perkins. loans, including whether FFEL borrowers could qualify for one-time debt relief without the need to consolidate,” an Education Department spokesperson said in a statement.
The spokesperson said the policy change would affect “only a small percentage of borrowers,” but did not immediately provide new data. The most recent federal data, as of June 30, shows there were more than 4 million federal borrowers with $108.8 billion in loans held by private lenders.
Earlier this month, the Biden administration released data estimating that 42.4 million borrowers across the country would be eligible for its debt relief package. The Department of Education declined to say whether that total includes federal student loan borrowers with private debt.
Senior Education Ministry officials and industry groups had been negotiating a compromise deal for weeks in which the companies were compensated for their losses and avoided suing the administration over it. But these discussions have not yet led to an agreement.
The Department of Education said on its website Thursday that it is “evaluating whether there are other avenues to provide relief to borrowers with federal student loans not held by [the Education Department]including FFEL program loans and Perkins loans, and is discussing this with private lenders.
