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It’s something more than 40 million Americans have in common: they hold federal student loans. But the loan system is notoriously complicated, and these loans go by different names and terms depending on when they were taken out and for what purpose.
What are usually just technical differences could now determine whether or not a borrower qualifies for President Joe Biden’s unprecedented new plan to cancel hundreds of billions of dollars in federal student debt.
Biden announced Wednesday that most federal student loan borrowers will be eligible for some remission: up to $10,000 if you haven’t received a Pell grant, which is a type of aid available to undergraduates. low-income cycle, and up to $20,000 if you did. The relief is limited to people earning less than $125,000 a year, or married couples or heads of households earning less than $250,000.
Your type of loan will also determine if you qualify.
Not sure what you have? On Studentaid.gov you can check.
Learn more about personal finance:
Biden writes off $10,000 in federal student loan debt
Timeline: key events on the road to student loan forgiveness
How the Student Loan Forgiveness Plan Works and When to Apply
Direct loans are eligible for forgiveness
Overall, the vast majority – around 37 million borrowers – will be eligible for forgiveness depending on their loan type (and then as long as they also fall under the income cap), because their debt is under that. called the William D. Ford Federal Direct Lending Program. This includes direct Stafford loans and all subsidized and unsubsidized direct federal student loans.
Under the Direct program, Parent Plus and Grad Loans are also eligible for relief, said higher education expert Mark Kantrowitz.
Then it gets complicated.
Relief cannot include ‘corporate-held FFEL loans’
Currently, the US Department of Education states that loans are eligible if held by the department. You might be wondering: Aren’t all federal student loans held by the government?
The federal government began lending to students on a large scale in the 1960s. At the time, however, it did not provide student loans directly. Instead, it guaranteed debt provided by banks and nonprofit lenders, under what is now known as the Federal Family Education Loans (FFEL) program. This program was eliminated altogether in 2010, after lawmakers argued that it would be cheaper and easier to lend directly to students. Nearly 10 million people still hold FFEL loans, according to Kantrowitz.
Today, Kantrowitz said, “about half are held by the US Department of Education and about half by commercial lenders.”
There are two reasons why the government can now hold FFEL loans. When those loans go into default, the private companies that previously held them transfer them to a guarantor agency that manages the debt on behalf of the federal government, Kantrowitz said. The other reason is that the government bought back some of the loans during the 2008 credit crisis.
Because much of the debt is still held commercially, and not with the Department of Education, there are concerns that it will not be included in Biden’s forgiveness. Those loans were also not covered by the Covid-pandemic-era payment pause on federal student loans, which drew criticism from advocates.
“The broad student loan forgiveness is available for the same loans that are eligible for the payment break,” Kantrowitz said. “This does not include FFEL loans held by companies.”
But there is a workaround for ineligible FFEL loans
Borrowers wanting to know where their FFEL loans are held can go to Studentaid.gov and log in with their FSA ID. Then go to the “My aid” tab and search for your loans. (At press time, access to the site was subject to long waits.)
Even if your FFEL loan is commercially held, all hope may not be lost.
A U.S. Department of Education spokesperson said borrowers with these loans can call their manager and consolidate them into the direct lending program to become eligible for the forgiveness.
There is currently no deadline to do so, but there probably will be. Accordingly, experts recommend borrowers in this situation to act quickly.
Some Perkins loans, private debt probably excluded
Another type of loan may also be excluded from forgiveness because it is not in government hands, Kantrowitz said: certain loans from the federal Perkins Loan Program. Some of these loans are given to the Department of Education, but most are held by colleges.
If you pay your monthly loan bill at one of the government loan services, you should be able to get the rebate, Kantrowitz said, but if your payments are sent to another private lender, you’re probably out of luck. .
All private student loans are also excluded.