Biden administration extends deadline to consolidate old student loans

More than 3.5 million student loan borrowers who received funding under a defunct private program will have more time to consolidate their loans if they want to qualify for a one-time initiative that could wipe out their debt, the Education Department said Wednesday.

Borrowers with federal loans that originated through the Federal Family Education Loan Program (FFEL) will have until June 30 to consolidate, 60 days more than originally planned, the Education Department said.

The extension will throw a lifeline to borrowers who are shut out of debt-relief policies because their federal loans are held by private entities. FFEL ended in 2010. If borrowers with FFEL loans consolidate into the Direct Loan program — where loans are made and held directly by the federal government — they can access the Biden administration’s payment-count adjustment that could result in debt relief.

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“The department is working swiftly to ensure borrowers get credit for every month they’ve rightfully earned toward forgiveness,” said Undersecretary of Education James Kvaal. “FFEL borrowers should consolidate as soon as possible in order to receive this benefit that has already provided forgiveness to nearly 1 million borrowers.”

The adjustment, launched in April 2022, temporarily waives the rules of income-driven repayment plans to retroactively credit borrowers with additional payments toward loan forgiveness. It is an effort to rectify years of mismanagement of the plans, which cap monthly payments at a percentage of earnings and forgive the remaining balance after 20 or 25 years.

A 2022 Government Accountability Office report found that decades of poor record-keeping, misleading information and miscommunication between the Education Department and its loan servicers left people repaying their loans for much longer than necessary.

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In response to the findings, the Biden administration said any month in which borrowers were in repayment would count toward forgiveness, regardless of how much they paid, the repayment plan or if they were delinquent on the debt. The waiver applies to debt in the Direct Loan program and FFEL managed by the Education Department, but requires borrowers with commercially held FFEL loans to convert their debt with the promise of getting credit for time in repayment before consolidation. Anyone who satisfies the required number of years for forgiveness receives automatic loan cancellation.

To date, the Education Department has approved nearly $50 billion in forgiveness for more than 996,000 borrowers through the initiative. The federal agency said Wednesday it would finish adjusting borrowers’ payment counts in September, two months later than anticipated, giving a full and accurate count of their progress toward debt relief.

“Without this extension, millions of borrowers who could benefit from the [income-driven repayment] account adjustment will be cut off from relief,” said Persis Yu, deputy executive director and managing counsel at the Student Borrower Protection Center. “For many, this extension could make the difference between being debt free and years of additional payments.”

Before it ended, FFEL was a $60 billion program in which private lenders used their own money to finance loans, while the government paid a portion of the interest and guaranteed the debt. The Education Department purchased some of the bank-based debt to keep the program going when the 2008 recession threatened the liquidity of private lenders.

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