The federal student loans held by private entities — through a program known as the Federal Family Education Loan Program — is a relatively small subset of outstanding federal student loans. It accounts for only a few million of the 45 million Americans who owe federal student loans.
But the corporate interests surrounding the program — a collection of private lenders, guarantors, loan servicers and loan investors — make the federally guaranteed loan program an outrageous legal threat to the administration.
Private lenders and other entities participating in the federally guaranteed student loan program are widely viewed, both within and outside the administration, as the greatest legal threat to the program.
Many of those companies face losses as borrowers convert their private federal student loans into loans owned directly by the Department of Education — through a process known as consolidation.
Government officials said when they announced the debt relief program in August that borrowers with government-guaranteed loans from private lenders would be able to get forgiveness by consolidating their debt into a new loan issued directly by the Ministry of Education.
The agency said Thursday that borrowers who have taken all those steps to receive loan forgiveness will still receive it. But the Ministry of Education said the path will no longer be available to borrowers after the new guidance.
“Our goal is to provide relief to as many eligible borrowers as quickly and easily as possible, and this will enable us to achieve that goal, as we continue to explore additional legally available options to help borrowers with private FFEL loans.” and help Perkins. loans, including whether FFEL borrowers can get one-time debt relief without having to consolidate,” a spokesman for the Ministry of Education 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 that 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 nationwide are eligible for the debt relief program. The Department of Education has declined to say whether that total includes privately indebted federal student loan borrowers.
Officials from the top Department of Education and Industry groups had spent weeks negotiating a compromise agreement that would compensate the companies for their losses and avoid suing the administration over the matter. But those talks have not yet led to a deal.
The Department of Education said on its website on Thursday that it is “assessing whether there are alternative ways to help borrowers with federal student loans who do not hold [the Education Department]including FFEL Program loans and Perkins loans, and is in discussions with private lenders about this.”