Biden Scales Back Student Loan Forgiveness: How It Impacts NJ Borrowers

NEW JERSEY — The Biden administration quietly rescinded eligibility for student loan forgiveness from a portion of the borrowers promised relief. For New Jersey's 1.2 million residents paying back student debt, that means some won't get the forgiveness they expected.

Originally, the federal government planned to forgive $10,000 in student loan debt for borrowers making $125,000 or families earning $250,000 a year or less, along with an additional $10,000 for borrowers who received Pell Grants for college.

But the U.S. Department of Education quietly changed its guidance on who qualifies for the relief plan. The agency rescinded eligibility for borrowers with federal student loans owned by private entities.

The education department quietly changed the language Thursday on its website to state, "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."

The policy change came as a group of six Republican attorneys general sued to block the loan forgiveness, arguing it's illegal and unconstitutional. Since the Biden administration announced the forgiveness plan last month, they also faced concerns over potential legal challenges from the student loan industry.

Student loan relief has represented a contentious issue leading up to Midterm Elections. Supporters of relief have argued that the student loan market would boost the economy and aid tens of millions who agreed to high-interest loans when they were young, along with reducing the racial wealth gap. Critics have stated that loan forgiveness shouldn't fall on the taxpayers.

The reversal will most significantly impact borrowers with Perkins loans and Federal Family Education Loans (FFEL). FFEL loans, issued by private banks but guaranteed by the federal government, were the mainstay for federal student loans until the FFEL program ended in 2010.

More than 4 million borrowers around the nation still have commercially-held loans from the FFEL program, NPR reports. They represent a portion of the 45 million Americans who owe $1.75 trillion in student loan debt as of August, according to the Federal Reserve Bank of St. Louis.

The decision will directly impact about 800,000 borrowers, a Biden administration official told NPR.

It's not yet clear how many New Jerseyans the Biden administration's change of plans will impact. The Garden State has about 1.2 million borrowers (12.9 percent of New Jersey residents) who owe a combined $42.5 billion in student loan debt. New Jersey borrowers average $35,434 in debt.

The lawsuit — filed in federal court in Missouri — came from attorneys general in Missouri, Nebraska, Arkansas, Iowa, Kansas and South Carolina. The Student Borrower Protection Center spoke against the lawsuit.

"The student loan industry has made it painfully clear to the American people that they will stop at nothing to protect their profits," said Mike Pierce, the nonprofit's executive director. "For decades, borrowers, advocates, and law enforcement officials have raised the alarm on the student loan industry’s illegal and deceptive practices."