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How to get student loan forgiveness if you have an FFELP loan

Bankrate 10/17/2022 Zina Kumok
a woman sitting at a table: Woman works with paperwork at a coffee table © Jamie Grill/Getty Woman works with paperwork at a coffee table

The Federal Family Education Loan Program was one of the United States’ first student loan programs. While the program ended on July 1, 2010, many borrowers still have FFEL loans. In fact, FFEL loans still make up nearly 15 percent of outstanding federal student debt.

In the past, borrowers with FFEL loans had to jump through hoops to be eligible for loan forgiveness. Thanks to recent changes from the Biden administration, borrowers with student debt will find it much easier to qualify for relief. FFEL loans qualify for relief through the Public Service Loan Forgiveness program, but the deadline to apply for forgiveness is Oct. 31, 2022. Read below to see how the new rules work.

What are FFEL loans?

FFEL (also sometimes abbreviated FFELP) was a loan program allowing private lenders to disburse federal student loans. FFEL differs from the William D. Ford Federal Direct Loan Program, where the U.S. Department of Education issues student loans directly to borrowers and has contracts with third-party loan servicers to collect on those loans.

Even though the program no longer exists, many FFEL borrowers still owe on their loans.

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 perks and benefits, like some income-driven repayment plans, extended deferment and forbearance periods and loan forgiveness options.

Do FFEL loans qualify for loan forgiveness?

In the past, FFEL loans were not eligible for loan forgiveness through Public Service Loan Forgiveness or most income-driven repayment plans. Only Direct Loans qualified, so FFEL borrowers had to consolidate their loans into a Direct Consolidation Loan if they wanted to pursue a forgiveness program.

But these forgiveness programs require you to make payments for a certain number of years. Borrowers who consolidated their loans had to start from scratch with their repayment timeline. Even if borrowers had been making payments on FFEL loans for 10 years, they would have to make another 10 years of payments to be eligible for Public Service Loan Forgiveness after consolidating.

However, in 2021, the Department of Education issued temporary rules for the Public Service Loan Forgiveness program. Now, any payments made while working under a qualifying employer will retroactively count toward PSLF —  even if you had an FFEL loan while making those payments.

To qualify for this limited waiver, you must consolidate those loans by Oct. 31, 2022. If you apply before the deadline, you can retroactively have payments count toward PSLF. If you miss the deadline, those past payments will not count toward the repayment plan. You will still be able to apply for PSLF, but only future payments will count.

For more information, visit the Federal Student Aid website.

You may have heard that the Biden administration is extending between $10,000 to $20,000 of student loan forgiveness to those with an annual income under $150,000. However, the program only applies to FFEL Loans held by the Department of Education or consolidated by Sept. 29, 2022.

Other ways to pay off FFEL loans

If you have an FFEL loan and want to see what your options are beyond the standard 10-year plan, consider one of the following alternatives. These options will not be affected by the Oct. 31 deadline for the PSLF forgiveness plan.

Income-driven repayment plan

FFEL loans are eligible for several income-driven repayment plans, which cut down your monthly payment to a percentage of your income. If you don’t wish to consolidate your FFEL loan, you may apply for the Income-Based Repayment Plan, which will set your payment 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, Revised Pay As You Earn and Income-Contingent Repayment. These programs have different payment percentages and repayment terms.

Your remaining loan balance is forgiven at the end of the income-driven repayment plan. But keep in mind that you’ll need to make payments for 20 or 25 years on these plans. Because of this, you’ll be in debt longer than if you stick with the standard repayment plan.

Other federal repayment plans

In addition to the standard repayment plan, the federal government offers extended and graduated repayment plans. These result in lower monthly payments than the standard plan. Qualifying these plans requires consolidating your FFEL loans.

The extended plan has a 25-year term, and payments can be fixed or graduated. The 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 an income-driven repayment plan is that there is no loan forgiveness at the term’s end. Also, borrowers often pay more interest under these plans.

Refinancing

Refinancing your FFEL loans can result in a lower interest rate, which may lead to less interest paid 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 offering much lower rates.

The downside of refinancing is that you’ll lose access to income-driven repayment plans and federal forbearance options. That’s because you will need to refinance with a private lender. Weigh the pros and cons and see which option fits your current financial situation.

The bottom line

If you have FFEL loans and are searching for student loan forgiveness, you’ll need to consolidate your loans through a Direct Consolidation Loan. You can then apply for Public Service Loan Forgiveness or an income-driven repayment plan, though it may take a few years to see your balance forgiven.

If you’re interested in Public Service Loan Forgiveness, act quickly. The government’s limited waiver is open only through Oct. 31, 2022, and it’s best to apply early to allow enough time for processing.

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