Consolidation of student loans could help you get relief – but the Education Department can’t tell you that

April 14, 2021
By: David Bergeron

During the pandemic, emergency relief has been provided to many federal student loan borrowers. This relief has included suspension of loan payments, cession of collection on defaulted student loans, and resetting the interest rate on some federal student loans to zero. But, until recently, this relief was limited to loans held by the U.S. Department of Education. While that includes all Direct Student Loans, it excluded many other types of federal student loans including Federal Family Education Loans (FFEL) owned by private lenders or held by guaranty agencies; Federal Perkins loans owned by institutions of higher education; and Health Education Assistance loans (HEAL) owned by private lenders.

For many borrowers, there was a simple way to gain access to the emergency relief: they could consolidate their federal student loans into the Direct Loan program. Why, then, didn’t the U.S. Department of Education immediately begin reaching out to promote this option? At a minimum, why didn’t the department work to promote consolidation with public service announcements running on television?

The reasons are complicated but are rooted in arcane provisions of federal appropriations law. As a general principle of federal law governing the use of funds, federal agencies are not allowed to advertise or market unless they have a specific authority to use funds for these purposes. In the case of the U.S. Department of Education, it had broad authority to use funds in the early days of the Direct Student Loan program. However, that authority was eliminated when the Direct Loan program became more attractive to institutions of higher education and to borrowers.

So, today, the Department can’t market.  Fortunately, late last month, the Biden-Harris administration extended relief to defaulted FFEL loans but that still leaves many borrowers with non-defaulted FFEL and HEAL loans held by private lenders and Perkins loans held by institutions of higher education without much needed relief.

But it highlights the need for congressional action to extend relief to borrowers. Cancellation can’t be accomplished simply by a stroke of a President’s pen. Congress decides how federal funds are spent whether it is to cancel all student loan debt or whether to advertise the ability of federal student loan borrowers to consolidate.

David Bergeron is currently retired and previously served 30 years in a variety of roles at the U.S. Department of Education including as acting Assistant Secretary for Postsecondary Education. He also was Vice President for Postsecondary Education Policy and then Senior Fellow at Center for American Progress.

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