Why are FFEL Loans not automatically eligible for PSLF? The answer lies in the history of FFEL Loans.
FFEL Program loans were made by private banks and state-based lenders and were guaranteed by the federal government. The guarantee meant that if a borrower defaulted or had their debt canceled, the federal government would step up and cover the lender for its loss. Although the loans were made by non-government lenders, FFEL Loans are federal loans, not private student loans.
During the 2008 recession, the Department of Education purchased some FFEL portfolios. Borrowers with FFEL Loans had no control over whether their loans were included.
Following the sale, FFEL Loans were split into two groups:
Unfortunately, the loans held by commercial lenders receive different treatment than the FFEL Loans held by the Education Department. The commercial FFEL Loans didn’t qualify for the coronavirus forbearance. As a result, those borrowers did not:
have their interest rate set to zero — interest kept accruing
receive a payment freeze — they had to keep making student loan payments
get automatic credit towards loan forgiveness — they had to make payments to receive credit towards repayment plan forgiveness and PSLF.