FFELP Loans: Forgiveness and Repayment Options

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FFELP Loans are a type of student loan that were made by private banks and state lenders. These loans were insured by guaranty agencies and the federal government. If a borrower defaulted on their "commercial student loans," the government would pay an interest subsidy to help make up for the loss. President Obama replaced FFEL Loans with Direct Loans during his first term. He also encouraged borrowers with FFEL Loans to consolidate them into Direct Consolidation Loans using his executive power.

FFEL Loans are no longer given out, but there are still 10.6 million people with outstanding loans. These people owe $238.8 billion in loans. In this post, I will help you understand your repayment options on these loans.

Important Takeaways:

  • All FFELP Loans are federal student loans
  • FFEL Loans can be forgiven
  • Public service workers can get credit for payments made on FFEL Loans

What are FFELP Loans?

FFELP loans are loans that were made through the Federal Family Education Loan Program. They are also called FFEL and commercial loans. These types of student loans were made by private lenders and were insured by a guaranty agency. All FFELP Loans are federal student loans even though they were made by a private lender.

What happened to FFEL loans? This student loan program ended in 2010 when the Health Care and Education Reconciliation Act of 2010 passed. Congress replaced it with the Federal Direct Loan Program.

Before the FFEL program ended, borrowers could get five types of FFEL Loans:

  • FFEL Unsubsidized Stafford Loans
  • FFEL Subsidized Stafford Loans
  • FFEL Consolidation Loans
  • FFEL Joint Consolidation Loans
  • FFEL PLUS Loans (Parent PLUS and Graduated)

FFEL vs. FFELP: Both mean the same thing and are used interchangeably. The "P" is for program, as in Federal Family Education Loan Program. FFEL Loans are loans that are made under the FFEL program (FFELP).

How do I know if I have FFELP Loans?

If you have federal student debt from 2011 or before, it may be an FFEL loan. The federal government owns some outstanding loans, but the majority are still owned by guaranty agencies like ECMC, Navient, and Trellis.

You can use the Federal Student Aid website, studentaid.gov, to see what kind of student loan you have and who holds it. Once logged in, click Dashboard > Loan Breakdown > Loan Details. You will then see a list of all the federal student loans you borrowed and the current student loan servicer.

What is the difference between FFELP Loans and Direct Loans? FFELP Loans were loans that were made by private lenders and insured by the federal government. Direct Loans, on the other hand, are made directly by the Department of Education. During the coronavirus pandemic, many FFELP Loans continued to gain interest and require payments. Meanwhile, all Direct Loans (whether in default or in repayment) were placed into forbearance, and the interest rate was set to zero.

FFELP Loans & the CARES Act

In March 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The CARES Act suspended student loan payments and reduced interest rates to 0% for all loans held by the Department of Education.

Not all borrowers with FFELP Loans received these benefits. There are two groups of FFELP Loans:

  • FFELP loans owned by the Department of Education
  • FFELP loans owned by a guaranty agency (commercial loans)

The first group was covered by the CARES Act and had their payments frozen. The second group was excluded from that forbearance and had to keep making payments. Plus, their loans kept accruing interest.

In March 2021, the Biden Administration expanded the CARES Act to include FFELP borrowers in default — regardless of which group they belonged.

How do you get an FFEL Loan forgiven?

FFELP borrowers are eligible for the following student loan forgiveness programs:

  • IDR Loan Forgiveness: forgives your remaining FFELP Loan balance after you pay 15% of your discretionary income for 20 to 25 years of monthly loan payments under a qualifying repayment plan — Income-Based Repayment Plan or Income-Contingent Repayment Plan.
  • Teacher Loan Forgiveness: forgives up to $17,500 for teachers who teach full-time for five complete and consecutive academic years in a low-income elementary school, secondary school, or educational service agency.
  • Closed School Discharge: forgives the FFEL Loans you borrowed if your school closed while you were enrolled or soon after you withdrew.
  • Total and Permanent Disability Discharge: forgives your student loan debt if a doctor or the Social Security Administration or Veterans Administration determines you are totally and permanently disabled.
  • Bankruptcy Discharge: gets rid of your student loans if you can prove that repaying your loans causes you an undue hardship.

Do FFEL Loans qualify for PSLF?

FFEL Loans do not qualify for the Public Service Loan Forgiveness Program. But suppose you consolidate them into a Direct Consolidation Loan. In that case, they can become eligible for PSLF and the just-announced PSLF Limited Waiver Opportunity.

Ordinarily, there's no way to receive credit towards forgiveness for the monthly student loan payments you made before you consolidated. But the new PSLF Limited Waiver Opportunity allows people who had FFEL Loans and Perkins Loans to include their payments towards the 120 qualifying payments needed for loan forgiveness.

The exemption also covers late payments, partial payments, and forbearances made for active-duty service members.

Will FFEL loans be forgiven?

If President Joe Biden forgives $10 thousand or $50 thousand in student loan debt, FFEL Loans owned by the US Department of Education will likely be included. It is not clear if he will also do it with other types of FFEL Loans.

FFEL Repayment Options

FFELP student loans are eligible for:

  • the income-based repayment and income-contingent repayment plan
  • the CARES Act interest rate and payment freeze, but only if the Department of Education has the loan
  • deferment and forbearance

In addition, student loan borrowers with good credit scores and incomes can refinance loans with a private lender. But refinancing may not save you much money on interest. Many FFEL Loans have low rates. Plus, turning a federal student loan into a private one can mean that you won't have access to certain repayment plans based on your income (e.g., IBR) and student loan forgiveness.

Want help with your FFELP Loans? Let's talk

If the different treatment for FFEL Loans seems dizzying, I'm here to help. For years, I've helped people like you develop strategies for their federal and private student loans.

Schedule a free 10-minute call with me today. We'll work together to develop a plan that fits your current financial situation and sets you up to meet your future goals.

UP NEXT: Update on Student Loan Pause Extension

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