WASHINGTON, Sept 29 (Reuters) - The Biden administration changed its guidance on who qualifies for federal student loan forgiveness on Thursday, as seven Republican-led states filed a challenge to its student debt cancellation program.

Department of Education (ED) on Thursday affects Federal Family Education loan (FFEL) borrowers - whose loans were issued and managed by private banks but guaranteed by the federal government - and does not allow them to consolidate their loans and qualify for debt relief.

Earlier, the department's website advised these borrowers that they could consolidate these loans into federal direct loans and qualify for relief.

29, 2022, borrowers with federal student loans not held by ED cannot obtain one-time debt relief by consolidating those loans into Direct Loans.".

According to federal data, more than 4 million borrowers still have commercially held FFEL loans.

The lawsuit argued that when FFEL borrowers consolidate their old loans into federal direct loans, private banks essentially lose business.

As of June 30, 43 million borrowers held $1.6 trillion in federal student loans.