In a surprise move, the Biden administration limited eligibility for its previously announced student loan jubilee—potentially leaving up to four million borrowers expecting relief out to dry. As of today, borrowers whose federal student loans originated in the Federal Family Education Loan Program (FFELP) are no longer eligible for forgiveness, regardless of their financial need. Even worse, many borrowers won’t realize they are being excluded from forgiveness until their applications are denied.
Prior to 2010, federal student loans were made through two parallel programs: the FFELP and the Direct Loan Program (DLP). Individual students had no say in which program they participated in and it made no difference to them anyway, as the terms were the same in both programs. The only real distinction between the two programs was how the dollars were financed on the back end. In FFELP, loans were financed by private lenders whereas loans made through the DLP were financed by the federal government. The two programs operated in parallel for decades but federal student lending was ultimately consolidated into the DLP in 2010. Some borrowers with loans in the FFELP program have consolidated their loans into the DLP to gain access to newer options for repayment, but as many as four million others still have their loans held by private lenders.
Based on this latest development, those borrowers are now out of luck. The worst part is that many borrowers with FFELP loans probably don’t know they have FFELP loans—there really was no reason for them to know. But that means they’re likely to learn about their exclusion from the student loan jubilee only after their application for relief is denied.
It’s obvious that this isn’t a move the White House wanted to make. In fact, it seems that a goal of their initial effort was to make the benefit as broad and untargeted as would be politically tolerable. The reason they took this step is because they are afraid of litigation that could overturn the entire executive order.
As I wrote yesterday, a legal challenge to the loan jubilee can only take place once a plaintiff has been identified who has experienced financial damages as a result of the intervention. I am guessing concern over FFELP lenders having such damages is what prompted this move from the White House.
If the White House had not excluded this group, borrowers with FFELP loans would have quickly fled that program, consolidating their loans into the DLP, and leaving FFELP lenders without any remaining loans on which to provide a service and generate revenue. In fact, it would probably have been the final nail in the coffin for this now largely irrelevant sector.
By excluding borrowers with FFELP loans from the jubilee, the administration removes the incentive for borrowers to flee the FFELP program and prevents those lenders from experiencing said damages.
Shortly after the news of this broke, Sarah Turner, Professor of Education and Economics at the University of Virginia, took to Twitter to explain why the borrowers who are now excluded from Biden’s student loan jubilee were probably among the most economically disadvantaged of the previously eligible borrowers. That’s because they were necessarily holding older loans which tend to disproportionately be held by people who attended community colleges, Historically Black Colleges and Universities, and private, for-profit colleges. She argued that “to protect the $10,000 to $20,000 for recent college graduates (not to mention those getting lawyers and MBAs from elite schools), the administration is willing to sacrifice relief for those who have been struggling with student debt for 10-plus years.”
By taking this step, the White House has taken away one legal strategy that could have potentially overturned their entire effort, but at the same time introduced an additional layer of chaos in confusion and likely make the giveaway even more regressive. This is the second time we’ve seen the White House duck an incoming legal punch by changing the policy that was originally introduced.
Quite frankly, it’s shocking that the administration didn’t anticipate these factors and has had to make adjustments after the fact. They had plenty of time to craft a more thoughtful action, or better yet work with Congress to pass legislation that would address the real challenges facing higher education, but failed to do so. American student borrowers and taxpayers really do deserve better.
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