Over the past two years, the Biden administration has implemented several fixes to the broken federal student loan program. For example, it took a chainsaw to the rules that blocked government and nonprofit employees from accessing the Public Service Loan Forgiveness Program. It also agreed to wipe out the loan balances of those who attended fraudulent for-profit schools that lied to students about job placement rates, expected earnings, the ability to transfer credits, and so on. Read more about borrower defense to repayment.
As of Aug. 18, those changes have led to more than 1.6 million people receiving over $32 billion in loan forgiveness.
Those numbers will soon increase.
At the end of August, President Biden announced that he would keep his campaign promise to take executive action to wipe out up to $20 thousand for people earning less than $125 thousand per year. Read more about Biden’s student loan forgiveness plan.
Initially, the White House said that only those with loans held by the Education Department would qualify for debt cancellation. Then the department clarified that FFEL borrowers could consolidate their loans into a Federal Direct Consolidation Loan to qualify. Then, before the application was launched, the department backpedaled again and shut out FFEL borrowers. Read more about when student loan forgiveness will start.
Related: Are Consolidated Loans Eligible for Loan Forgiveness?
The department is also conducting a one-time waiver and account adjustment that will credit all federal student loan borrowers with progress toward forgiveness after 20+ years of making monthly payments. The IDR Waiver is expected to cancel the debts of several thousand borrowers with older loans and give 3.6 million more people at least three years of additional credit toward repayment forgiveness.
Here’s how FFELP borrowers can take advantage of those loan forgiveness opportunities.
Biden’s $10-20k debt cancellation opportunity
President Biden recently took executive action to erase significant amounts of student loan debt for tens of millions of Americans. The relief is targeted: only borrowers who earned less than $125 thousand and have loans held by the Education Department qualify — at least initially.
Those with private student loans are locked out of it permanently, and, as of right now, so are FFEL borrowers. Here’s what happened: initially, FFEL borrowers were not eligible for the program at all. Then, they were told by the Department of Education that they could crack into the cancellation opportunity by consolidating into a Direct Consolidation Loan.
But on Sept. 29, the department changed its mind again — possibly due to concern that the private banks holding these loans would file lawsuits due to the financial harm forgiveness would cause them. This change will not impact FFEL borrowers who were proactive and applied to consolidate their loans by Sept. 28.
If you are eligible, you have until the end of next year, Dec. 31, 2023, to apply for debt cancellation. (Currently, forgiveness is delayed due to a challenge from the courts, but the application is still available).
Consolidating FFEL loans
Even though FFEL loan holders aren’t eligible for Biden’s forgiveness plan, consolidation still might not be a bad idea — first of all, the Department of Education has stated that it is still looking for fixes for FFEL borrowers. Additionally, there are other benefits to consolidating FFEL loans that could lead to other types of cancellation.
Nearly all FFEL borrowers can consolidate — even those who already have an FFEL Consolidation Loan. (In that case, you’re effectively refinancing the loans with the federal government.)
Initially, couples with joint spousal loans were unable to consolidate, but as of Oct. 12, President Biden signed a law allowing couples to separate their joint spousal consolidation loans by the initial amount each owed.
Separating spousal loans is helpful to both divorced couples and individuals who want to take advantage of Department of Education forgiveness programs like public service loan forgiveness or income-driven repayment. I’ll discuss these programs next.
Related: Type J Student Loan Forgiveness
Public Service Loan Forgiveness
If you worked full-time in public service anytime after Oct. 2007, you could receive credit towards PSLF — even if you previously applied and were rejected or no longer work for the government or a nonprofit. The Limited PSLF Waiver allows you to consolidate your FFEL Loans* into the Federal Direct Loan Program and get credit for the payments you made while working in public service.
Normally, loan consolidation resets your progress toward PSLF. But the waiver temporarily changes by counting any prior period of repayment as a qualifying payment, regardless of loan program, repayment plan, or whether you made the payment in full or on time.
Related: PSLF Eligible vs. Qualifying Payments
To qualify, you must consolidate into the Direct Loan Program by Oct. 31, 2022.
* Borrowers with Parent PLUS Loans aren’t eligible for the PSLF Waiver, but they still qualify for the regular PSLF Program.
Income-Driven Repayment Plan Forgiveness
The Education Department writes off borrowers’ remaining loan balances after 20 or 25 years of payments under one of its four income-driven repayment plans:
Income-Based Repayment (IBR)
Income-Contingent Repayment (ICR)
Pay As You Earn (PAYE)
Revised Pay As You Earn (REPAYE)
This April, the department announced it would give borrowers credit toward loan forgiveness for some months that weren’t counted previously, including some deferment and forbearance periods. Read more about forbearance steering.
This account adjustment benefits FFEL borrowers who consolidate into a Direct Loan. Because FFELP Loans are more than a decade old, borrowers could make substantial progress toward loan forgiveness. And if you’ve had loans that have been in repayment for at least 20 years, those loans may immediately qualify for forgiveness. Read more about the IDR Waiver.
To qualify for this benefit, you must consolidate into a Direct Loan before the department finishes processing the adjustment, which it estimates will be no sooner than Jan. 1, 2023.
There are no fees and no credit checks. You can consolidate your loans with bad credit. There’s no need to work with your current student loan servicer to apply. Visit the Federal Student Aid website, studentaid.gov, and use your FSA ID to log in.
Once the consolidation completes, your new loan will be eligible for the CARES Act payment pause, 0% interest rate, and credit towards PSLF and IDR Plan forgiveness.