How to get student loan forgiveness if you have an FFELP loan
The Federal Family Education Loan Program was one of the first student loan programs in the United States. While the program ended on July 1, 2010, many borrowers still have FFEL loans. In fact, FFEL loans still make up about 15 percent of outstanding federal student debt.
In the past, borrowers with FFEL loans had to jump through hoops to qualify for loan forgiveness. Thanks to recent changes from the Biden administration, it will be easier for borrowers with student debt to qualify for relief. FFEL loans qualify for relief through the Public Service Loan Forgiveness Program, but the deadline to apply for forgiveness is October. 31, 2022. Read below to see how the new rules work.
What is a FFEL student loan?
FFEL (sometimes abbreviated FFELP) was a loan program that allowed private lenders to disburse federal student loans. FFEL William d. Ford differs from the Federal Direct Loan Program, where the U.S. The Department of Education makes student loans directly to borrowers and contracts with third-party student loan servicers to service those loans.
Although the program no longer exists, many FFEL borrowers are still in arrears on their student loan.
Are FFEL Loans Federal or Private?
Although private loan companies administer FFEL loans, they are still federal student loan. This means that FFEL borrowers are eligible for many federal benefits and benefits, such as some income-based repayment plans, extended deferment and forbearance periods, and loan forgiveness options.
What is a FFEL loan?
FFEL (sometimes abbreviated FFELP) was a loan program that allowed private lenders to disburse federal student loans. FFEL William d. Ford differs from the Federal Direct Loan Program, where the U.S. The Department of Education makes student loans directly to borrowers and contracts with third-party loan servicers to service those loans.
Although the program no longer exists, many FFEL borrowers are still in arrears on their loans.
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Are FFEL Loans Federal or Private?
Although private loan companies administer FFEL loans, they are still federal loans. This means that FFEL borrowers are eligible for many federal benefits and benefits, such as some income-based repayment plans, extended deferment and forbearance periods, and loan forgiveness options.
Are FFEL loans eligible for loan forgiveness?
In the past, FFEL loans were not eligible for public service loan forgiveness or loan forgiveness through most income-based repayment plans. Only Direct Loans qualified, so FFEL borrowers had to consolidate their loans into a Direct Consolidation Loan if they wanted to pursue the forgiveness program.
But these waiver programs require you to pay for certain years. Borrowers who consolidated their loans had to start over with their repayment timelines. Even if borrowers have been making payments on FFEL loans for 10 years, they still have to make 10 more years of payments to be eligible for public service loan forgiveness after consolidation.
However, in 2021, the Department of Education issued temporary regulations for the Public Service Loan Forgiveness Program. Now, any payments made while working under a qualifying employer will count retroactively toward PSLF — even if you had an FFEL loan at the time of making those payments.
To qualify for this limited forgiveness, you must pay off that loan on Oct. Must consolidate by 31, 2022. If you apply before the deadline, you can count payments toward PSLF retroactively. If you miss the deadline, those past payments will not count toward the repayment plan. You may still be able to apply for PSLF, but only future payments will count.
You may have heard that the Biden administration is expanding between $10,000 and $20,000 of student loan forgiveness for people with annual incomes below $150,000. However, this program only applies to FFEL loans held or consolidated by the Department of Education.
Other Ways to Repay FFEL Loans
If you have an FFEL loan and want to see what your options are outside of the standard 10-year plan, consider one of the options below. These options will not be affected by the October 31 deadline for the PSLF Waiver Scheme.
Income based repayment plan
FFEL loans are eligible for several income-driven repayment plans, which reduce your monthly payments to a percentage of your income. If you don’t want to consolidate your FFEL loans, you can apply for an income-based repayment plan, which will set your repayments at 15 percent of your discretionary income for 25 years.
If you consolidate your FFEL loans into a Direct Consolidation Loan, you’ll be eligible for Pay As You Earn, Improved Pay As You Earn, and Income-Contingent Payments. These programs have different payment percentages and payment terms.
Your remaining loan balance is forgiven at the end of the income-driven repayment plan. But keep in mind that you will need to make payments for 20 or 25 years on these plans. Because of this, you will stay in debt longer than if you stick to a standard payment plan.
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Other federal payment plans
In addition to the standard payment plan, the federal government offers extended and graduated payment plans. This results in lower monthly payments than the standard plan. Your FFEL loans need to be consolidated to qualify for these plans.
An extended plan has a 25-year term, and payments can be fixed or graduated. A graduated repayment plan has a 10- to 30-year repayment period, and payments will start low and increase every two years.
The main difference between these plans and the income-driven repayment plan is that there is no loan waiver at the end of the term. Also, borrowers often pay more interest under these schemes.
Refinancing
Refinancing your FFEL loan can result in a lower interest rate, which can lead to lower interest payments over the life of the loan. Before the FFEL program ended, the interest rate for subsidized FFEL loans was 5.6 percent, and the interest rate for unsubsidized FFEL loans was 6.8 percent. Nowadays, you can find private lenders that offer much lower rates.
The downside of refinancing is that you lose access to income-driven repayment plans and federal forbearance options. That’s because you’ll need to refinance with a private lender. Weigh the pros and cons and see which option suits your current financial situation.
Bottom line
If you have FFEL loans and are seeking student loan forgiveness, you will need to consolidate your loans through a Direct Consolidation Loan. You can then apply for public service loan forgiveness or an income-based repayment plan, although it may take a few years for your balance to be forgiven.
If you are interested in Public Service Loan Forgiveness, act fast. The government’s limited waiver is only open until October 31, 2022, and it’s best to apply early to allow enough time for the process.
Are FFELP Loans Eligible for Cancellation?
President Biden announced plans to cancel $20,000 of student loan debt per borrower with less than $125,000 for individual filers and $250,000 for joint filers. Qualified borrowers will receive $20,000 in discharge if they are Pell Grant recipients and $10,000 if they are not.
Federally owned FFELP loans are eligible for this cancellation; If your payments have been suspended, you are eligible.
Commercially owned FFELP loans will be eligible if borrowers have applied to consolidate by September 29, 2022. Borrowers with commercial FFELP student loan who also have Direct Loan Program loans are eligible for cancellation only for their Direct Loans. This was in contrast to previous guidance regarding the foreclosure eligibility of commercially owned FFELP loan. More than 4 million borrowers have commercial FFELP debt. Contact your servicer to confirm what type of FFELP loan you have.
More relief efforts may be possible, but the Education Department has not released any details to suggest a plan.
Are FFELP loans eligible for PSLF?
FFEL loans are not eligible for:
- Public Service student Loan Forgiveness, or PSLF.
- Pay as you earn.
- Revised salary as you earn.
- Income-contingent payment.
To access these programs, you must consolidate an FFELP student loan into a Federal Direct student Loan.
In October 2021, the Department of Education announced a limited waiver that would allow payments on FFEL loans to count toward PSLF. To take advantage of limited forgiveness, borrowers with FFEL loans need to consolidate their loans into a Federal Direct Loan and then submit a PSLF form before October 31, 2022. Any payments made on your FFEL loan after 2007 will count retroactively toward PSLF.
Can (or should) I consolidate my FFELP loans?
You can consolidate FFELP loans in many cases. You cannot consolidate into a direct loan if you already have a spousal consolidation or have an active lawsuit or legal judgment against you.
If you qualify to consolidate, there are still some trade-offs. Consolidating an FFELP loan into a Direct Loan will capitalize any unpaid interest and increase your principal loan balance. Consolidation can also wipe out any progress you’ve made toward income-based payment forgiveness.