A graduate who calls himself "April Vendetta" protests student debt in New York's Washington Square Park on May 19, 2021, after New York University's virtual commencement ceremony.
Timothy A. Clary | AFP | Getty Images
Federal student loan borrowers whose loans are not held by the U.S. Department of Education will no longer be able to consolidate in order to qualify for President Joe Biden's student loan forgiveness program, according new guidance from the department.
The update on the Education Department's guidance for the one-time student loan debt relief is an about-face from previous guidelines, which said those borrowers could consolidate their debts to Direct Loans in order to qualify for the relief.
Biden announced plans for sweeping student loan forgiveness in August. That includes up to $10,000 in forgiveness for federal student loan borrowers and up to $20,000 in relief for Pell Grant recipients. In order to qualify, borrowers had to be under certain income thresholds — $125,000 for individuals and $250,000 for households.
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However, the plan announcement immediately raised questions as to whether borrowers with Federal Family Education Loan Program, or FFEL, loans not held by the government would also be eligible.
At the time, the Education Department was said to be exploring strategies to allow those "overlooked borrowers," who are estimated to total roughly 5 million, from being excluded from forgiveness.
However, the number of borrowers affected by this decision is about 770,000, according to an administration official.That's as some may be excluded based on income requirements, while others may qualify for the relief based on other loans held by the government.
Those with commercially-held FFEL loans have been excluded from the federal student loan payment pause that has been in place throughout the pandemic.
In an update to its website, the Education Department now states, "Consolidation loans comprised of any FFEL or Perkins loans not held by ED are also eligible, as long as the borrower applied for consolidation before Sept. 29, 2022."
Student loan experts and borrowers were quick to express their shock as news of the policy change hit social media on Thursday.
"As recently as yesterday, the site said they were working on a solution for these borrowers," Betsy Mayotte, president of The Institute of Student Loan Advisors, tweeted. "This is a gut punch, to say the least."
The Education Department is assessing whether there are alternative pathways to provide relief to borrowers with federal student loans not held by ED, including FFEL Program loans and Perkins Loans, and is discussing this with private lenders," the website states.
last reviewed: JAN 11, 2022
This benefit is known as Perkins loan cancellation. For each complete year of service, a percentage of the loan may be canceled. The total percentage of the loan that can be canceled depends on the type of public service performed.
If you choose to consolidate a Perkins loan into a federal Direct Consolidation Loan to become eligible for Public Service Loan Forgiveness, you will no longer be eligible for Perkins loan cancellation. You should understand your options before you choose to consolidate. More information about Perkins loan cancellation is available on the Federal Student Aid website .
Financing a Perkins Loan Consolidation
Get Lower Rates on Your Federal Loans
Perkins Loans are federally-guaranteed student loans that are issued jointly, by the U.S. government and individual financial aid departments at colleges and universities. The low-interest, fixed-rate loans are in-place to provide supplemental funding for students with extraordinary financial aid needs for college.
Federal programs like Pell Grants and William D. Ford Federal Direct Loans provide general assistance for low and middle-income applicants. Select, economically disadvantaged students are eligible for additional loans through the Perkins program. The aid is designed to increase college access for the neediest groups of students. Perkins Loans fill gaps left after other financial aid is expended. Funding is limited, so your best bets for securing a loan are to file early, and meet federal financial aid eligibility requirements.
Over the course of a student’s post-secondary education, he or she may enter into multiple loan arrangements, with private lenders, as well as the Department of Education. Perkins borrowers may have multiple outstanding loans, but many students also carry federal Stafford Loans, and others issued through the Direct Loan Program. Students with multiple federal loans are increasingly concerned about how they will meet repayment obligations after graduation.
The good news for college students, and graduates carrying multiple individual student loans, is that the Department of Education operates an established program allowing more than one loan to be bundled together under a single, renegotiated repayment contract. Loan Consolidation applies to outstanding federal debt, whether Perkins, Stafford or Federal Direct Loans.
What you need to know about consolidating your Perkins Loan
Perkins Loans stand apart, in some ways, from the other federal student loan programs. Perkins Loans feature special benefits and perks that are not always recommended for consolidation.
The advantages realized by student who participate in the Federal Direct Consolidation Loan Program are several. By reorganizing loans under a single repayment umbrella, some of the loans may shift from the higher interest terms they originally carried, to more favorable rates offered through consolidation. It is important to recognize your current rates, and compare them to potentially lower consolidation options. If your Perkins Loans already carry low rates, it may not benefit you to consolidate.
Another consolidation benefit realized by students having difficulty keeping up with student loan payments, is restructured repayment. By extending the term of student loan repayment, or selecting an individual payment plan that matches income levels and ability to pay, borrowers who participate in the Consolidation Program sometimes have lower monthly payments on the new loans. It should be noted, however, that extending repayment terms also adds more total interest to the loan, over its entire lifetime.
The number one drawback to consolidating a Perkins Loan is the loss of loan cancellation benefits. If you are, or will be, a public school teacher, or if you teach math, science or special education subjects, you may qualify for Perkins loan cancellation. When Perkins loans are consolidated alongside other outstanding federal loans, the cancellation benefit is eliminated.
Consolidation Through the Direct Federal Loan Program
Perkins Loans may be consolidated through the Federal Direct Loan Consolidation Program, provided eligible borrowers also hold at least one Direct Federal Loan other than the Perkins that is to be consolidated. Once you consolidate through the Direct Federal Loan Program you lose the grace period provided with your Perkins Loan, which is nine months – compared to the six month periods for other loans, like Stafford.
Consolidation Through a Private Lender
Many lenders have expanded their portfolios of debt management tools to include lower-cost alternatives to student loan consolidation. If you hold private loans, and are having a hard time making payments, consult with your loan representative to help evaluate your resources, debt obligation, and ability to pay. The best consolidation or student loan repayment alternatives help students avoid default, which has significant long-term consequences.