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Student loan forgiveness: Some borrowers no longer eligible for debt relief

President Joe Biden’s administration announced Thursday that it is scaling back the federal student loan cancellation program amid legal challenges to the debt relief plan.

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The new guidelines will exclude nearly 800,000 borrowers who were initially told they were qualified for loan forgiveness.

The announcement means that some of those who took out federal loans that were guaranteed by the government, but were handled by private banks, will not have those loans forgiven.

As of Thursday, the Department of Education said in a statement that many of those with Perkins loans and Federal Family Education Loans will no longer qualify for the forgiveness program.

Biden announced in August that those who make less than $125,000 a year and had federally-backed loans would have up to $10,000 of student debt forgiven. For those who had Pell Grants, an additional $10,000 of debt would be forgiven.

The announcement of the change in the plan came on the same day as six states filed suit against Biden over the plan. The suit argues that student loan cancellation would decrease revenue from interest payments for the private banks that manage the federally-backed loans.

Governors from six states — Arkansas, Iowa, Kansas, Missouri, Nebraska and South Carolina — filed suit against the administration claiming that when FFEL borrowers consolidate their old loans into federal direct loans, private banks lose business.

Arizona Attorney General Mark Brnovich, a Republican who is running for a seat in the U.S. Senate, filed suit against the Biden administration over the student loan forgiveness program, arguing Biden doesn’t have the authority to take such an action.

The Department of Education relied on the HEROES Act, which allows the secretary of education to cancel student loan debt in the event of a national emergency. The department said that the national emergency used to justify the cancellation of the debt was the COVID-19 pandemic.

“This mass debt forgiveness program is fundamentally unfair, unconstitutional, and unwise,” Brnovich said in a statement. “The question Americans need to be asking is why college costs so much in the first place.”

According to the Department of Education, around 4 million Americans have FFEL or Perkins loans. About 770,000 of those borrowers will no longer be able to get the loan forgiveness. Other FFEL and Perkins borrowers will qualify for the relief because they consolidated their education debt into federal direct loans before Thursday.

The department’s website had advised FFEL borrowers that they could consolidate loans into federal direct loans to qualify for the debt relief plan.

But on Thursday, the department changed the language to read: “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.”

As of June 30, 43 million borrowers held $1.6 trillion in federal student loans. About $430 billion of that debt will be canceled, according to the Congressional Budget Office.

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