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Updated on October 3, 2022
Type J student loans are unsubsidized consolidation loans made through the Federal Family Education Loan Program.* These types of loans are federal student loans, but they are not automatically eligible for many of the benefits implemented by the White House and Department of Education since the pandemic began.
Borrowers with Type J Loans will need to consolidate their loans a second time into a Direct Consolidation Loan before they can qualify for President Biden’s broad debt cancellation, Public Service Loan Forgiveness, and Income-Driven Repayment Plan Forgiveness. Consolidating does not require a credit check and usually does not increase your current interest rate. But it can increase your principal loan balance, which could cause you to pay more interest in the long term.
Keep reading to learn more about the forgiveness and repayment options for Type J student loans.
Related: Will FFELP Loans Be Forgiven?
*Type O student loans are the subsidized portion of an FFEL Consolidation Loan.
Loan forgiveness options for Type J Loans
Type J Loans are federal loans, but the U.S. Department of Education usually does not own them directly. They’re often owned by a guaranty agency and guaranteed by the federal government — a guarantee means that the government will step in and cover the agency’s loss if student loan borrowers fall behind on their monthly payments and default.
The different ownership status means that Type J Loans and other FFEL Loans don’t automatically qualify for many of the student loan forgiveness opportunities the Biden administration announced. But there’s an easy solution: Direct Loan Consolidation.
Once the loans are consolidated, they become eligible for these three student loan forgiveness programs:
President Biden’s debt cancellation plan would reduce borrowers’ student loan debt by $10 thousand if they didn’t receive a Pell Grant, a type of financial aid available to low-income undergraduate students, and by $20 thousand if they did. The relief is only available to borrowers earning less than $125 thousand or married couples earning less than $250 thousand.
Private student loans aren’t eligible for cancellation, but Parent PLUS Loans and Perkins Loans are.
The Education Department will use the adjusted gross income on your tax return for 2020 or 2021, whichever is lower, to determine your eligibility for this benefit. Learn more about the $20,000 student loan forgiveness program. Read more about the $20k student loan forgiveness.
The Limited Public Service Loan Forgiveness Waiver allows people who’ve worked full-time for the government or a nonprofit anytime after Oct. 1, 2007, to get credit towards PSLF. If you have an FFEL Stafford Loan, you’ll need to consolidate it into a Direct Loan before Oct. 31, 2022, to qualify for the waiver. Read more about the PSLF Waiver.
Income-driven repayment plan forgiveness writes off your remaining balance after 20+ years of making student loan payments under an IDR Plan. Later this year, the Education Department will retroactively credit millions of borrowers with additional payments toward IDR forgiveness using a one-time waiver and adjustment.
Related: IDR forgiveness
Borrowers will receive credit for payments made, regardless of which payment plan they were on at the time. Besides school deferment, the department will also count months spent on deferment before 2013 as qualifying payments. It will also consider forbearances of 12 consecutive months or more, as well as 36 cumulative months or more, toward forgiveness, for income-driven repayment and the Public Service Loan Forgiveness program. Read more about the IDR Waiver.
Related: FFEL Stafford Subsidized and Unsubsidized Loans: What Are They?
How to consolidate Type J Loans
Most borrowers with FFEL Consolidation Loans, or Type J Loans, can consolidate the loans a second time — even if they only have one loan — into the Direct Loan Program. The only people who can’t consolidate are those who have Joint Spousal Consolidation Loans or who have defaulted on their loan, been sued, and had a judgment placed against them.
Related: Spousal Consolidation Loan Forgiveness
You can apply for loan consolidation online at the Federal Student Aid website, studentaid.gov. You’ll need to create an FSA ID if you haven’t already done so. You can also submit a paper application to the student loan servicer of your choice.
The consolidation process takes about 4-6 weeks to complete. If you’re applying for the PSLF Waiver or the IDR Account Adjustment, you’ll need to consolidate soon to take advantage of those temporary opportunities.
Learn More: Do FFEL Loans Qualify for PSLF?
Loan repayment options
If you decide not to consolidate your Type J loan, you can get a lower payment by enrolling in the income-based repayment plan. Enrollment is open to any borrower with a partial financial hardship. For those with high incomes — above six figures — you may be able to score a lower monthly payment amount by switching to the Standard Repayment Plan or the Extended or Graduated Plans.
Type J student loans can be forgiven, but you may need to consolidate before that can happen. Let’s talk if you have questions about how to maximize your forgiveness options.