Despite the FFEL program ending in 2010, there’s still a massive amount of outstanding student loan debt stemming from the program. In fact, as of the second quarter of 2021, FFELP student loans account for $238 billion of outstanding student loan debt for over 10 million borrowers.
IMPORTANT NOTE: On October 6, 2021, the Biden administration issued an executive action that greatly impacts FFELP loans for borrowers who have worked in a non profit or government job that could result in tax-free discharge. If you consolidate your student loans through the government’s Student Aid website and have made 10 years’ worth of payments while employed at a qualifying job full time, your entire loan balance would be wiped away tax-free. You must also certify your employment with the government’s PSLF help tool and do all of this prior to October 31, 2022. The limited time is due to the Biden administration relying on authority during national emergencies to enact such wide ranging reforms. Thus they must be offered for a limited time. If you need help navigating these options, we provide professional help.
Also note that the government suspended payments and interest on FFELP loans owned by the Department of Education between March 13, 2020 and May 1, 2022. This pause does not apply to commercially owned FFELP loans.
Here’s what else you need to know about FFELP loans, your repayment options, and your best options for receiving FFELP loan forgiveness.
What is an FFELP loan?
The Federal Family Education Loan Program was a student loan program backed by the federal government. It began as part of the Higher Education Act of 1965 and officially launched in 1966. Through the program, private lenders provided student loans to students and parents that were backed by federal or non-profit guaranty agencies. Also, the government-mandated specific interest rate levels for all FFEL loans.
The terms “FFELP loans” and “FFEL loans” are often used interchangeably to refer to Federal Family Education Loan Program loans. There are 4 types of FFEL loans that were available to student loan borrowers during the program’s existence:
- Subsidized Stafford loans: Interest is paid by the government while students are in school as well as during periods of grace and deferment.
- Unsubsidized Stafford loans: Interest isn’t paid by the government at all.
- Plus loans: Available to parents and grad students to help to pay for education costs.
- Consolidation loans: Combines more than one student loan into one single loan.
Since 1966, over 60 million Americans have used FFEL to help pay for college expenses. The program was discontinued on July 1, 2010 and now FFELP loans have been made since.
ED-owned vs. commercial-owned FFELP loans
In response to the 2008 financial crisis, the Department of Education began to purchase some FFELP loans from private lenders to ease some of their liquidity concerns.
Not all FFEL loans were purchased by the government during this time, however. So the student loan industry began to refer to the repurchased loans as ED-owned FFEL loans and to those that weren’t bought back as commercially-owned FFEL loans.
Eventually, the FFEL program was replaced by the Direct Loan program. This is the current student loan program run by the federal government. The main difference between these federal loans is that Direct Loans are funded by the US Treasury directly instead of through private lenders.
FFELP loan forgiveness options
The good news is that you can qualify for FFELP loan forgiveness through a few options. Here are three programs worth looking into if you have large amounts of FFEL student loan debt.
Public Service Loan Forgiveness (PSLF)
Public Service Loan Forgiveness may be an option for people with FFEL loans if those loans are consolidated into Direct Loans. Borrowers pursuing Public Service Loan Forgiveness can have any remaining student loan balance forgiven after 120 qualifying payments (which don’t have to be consecutive) while working full-time for a qualifying employer.
Please note that any previous payments made while loans were still under the FFEL program won’t count toward the 120 qualifying payments under normal procedures. Borrowers would normally be starting from scratch after Direct Loan consolidation. To get approved for PSLF, you must be on a qualifying repayment plan, which includes these income-driven repayment (IDR) plans:
- Pay As You Earn (PAYE)
- Revised Pay As You Earn (REPAYE)
- Income-Based Repayment (IBR)
- Income-Contingent Repayment (ICR)
The standard 10-year repayment plan also qualifies for PSLF, but if you’re on the standard repayment plan for the full 10 years, there will be very little or no debt left to forgive. See the Department of Education website for more details. To apply for PSLF, you must fill out Public Service Loan Forgiveness Application for Forgiveness.
NOTE: See note above explaining how many of the restrictions on FFELP loans receiving a PSLF discharge have been lifted on a limited time basis until October 31, 2022. If you are a long term public servant with student loans, YOU NEED TO TAKE ACTION NOW. Note that Parent PLUS loans and private student loans are unfortunately not included in this limited relief.
Teacher Loan Forgiveness
FEELP loans qualify for the Teacher Loan Forgiveness program “out of the box.” In other words, you don’t have to take out a Direct Consolidation loan to become eligible for FFELP loan forgiveness.
The Teacher Loan Forgiveness program offers up to $17,500 of student loan forgiveness for highly qualified teachers who work full-time for five years at a an elementary school, secondary school, or educational service agency that serves low-income students. Note that, unlike with the PSLF program, the five years of service must take place consecutively.
To be considered a “highly qualified teacher,” you must teach mathematics, science, or special education at one of the schools listed in the TCLI Directory. If you’re not a math, science, or special education teacher, you could still receive up to $5,000 in loan forgiveness.
Forgiveness through income-driven repayment
The income-driven repayment plans mentioned above are another FFELP loan forgiveness option. With an IDR plan, your remaining student loan debt can be forgiven in 20-25 years. This is a great loan forgiveness option if you aren’t eligible for PSLF or aren’t interested in working in a low-income area of need or non-profit organization.
In order to repay student loans using PAYE, REPAYE or ICR, you would need to consolidate your FFEL loans into a Direct Consolidation Loan. IBR is the only Income-Driven Repayment option if you choose to keep your FFEL loans. With IBR, monthly payments will generally be 15% of your discretionary income, but never more than payments under a 10-year Standard Repayment Plan.
The IRS views forgiven federal student loans in the IDR program as taxable income so keep in mind that there could be hefty tax implications if you’re pursuing FFELP loan forgiveness through IDR. Make sure you research each program carefully before choosing a plan.
Other repayment options for FFEL loans
Don’t qualify for FFELP loan forgiveness? Or perhaps you don’t want to carry student loan debt for 20 to 25 years? There are other options for repaying your FFEL loans.
All of the repayment programs are unique and have pros and cons to consider. Take the time to become familiar with all of your options before making a decision so you end up with the repayment plan that is right for you.
Take advantage of COVID-19 emergency relief
While Ed-owned FFELP loans have been eligible for coronavirus student loan relief from the start, privately-help FFEL loans have not been. However, in March 2021, President Biden’s administration extended the relief to commercially-owned FFEL loans that were in default. This means that some FFELP borrowers are now eligible for a 0% interest benefit through May 1, 2022.
Note that this new relief does not apply to privately-held FFELP loans that are still in good standing. It’s important to mention that the new relief for defaulted FFELP borrowers is retroactive to March 13, 2020. This means you can receive a refund for any voluntary payments made after that date as well as for any garnished wages or tax refunds.
Lower student loan payments through the Extended Repayment Plan
One way to reduce student loan payments on FFELP loans is by applying for the Extended Repayment Plan. Loan payments in the Extended Repayment Plan are spread out over 25 years. You also can choose between two types of payments: fixed or graduated monthly payments.
Extended Fixed monthly payments would stay the same amount for the life of your loan. Extended Graduated monthly payments would start lower. But the amount would increase every two years for the life of the loan.
Payments would be much lower than your standard 10-year federal student loan. Let’s say that you’re an Arizona resident who graduated from a four-year for-profit private school with $34,722 in student loan debt at 3.900% interest. With the 10-Year Standard Repayment Plan, your monthly payments would be $350.
If you chose the Extended Fixed repayment plan, your monthly payments would stay at $181 for the entire 300 months. And if you went with the Extended Graduated plan, your payments would start out at $113 monthly, but reach $328 by your last monthly payment.
Apply for the Graduated Repayment Plan
Don’t like the idea of spreading out your FFEL loan payments over 25 years? The Graduated Repayment Plan allows you to lower your monthly payments in the beginning and then they increase every two years for 10 years (except with consolidation loans).
The idea is that your salary will potentially increase as you work longer. The Graduated Repayment Plan is structured with that in mind, assuming you will be able to afford higher student loan monthly payments as you get further into your career.
Income-sensitive repayment (ISR)
Another repayment option for people with FFELP loans is the Income-Sensitive Repayment Plan. This plan is not as well known as some other repayment options. That’s because it’s only available to people with FFEL loans. With this plan, your monthly payments increase and decrease based on your annual income.
This plan lasts for a maximum of 10 years. So if you choose lower monthly payments early on, your payments could be extremely high toward the end. ISR monthly payments must at least cover the interest that accrues on your loan every month. And you’ll need to reapply annually with your current gross monthly income so payments can be calculated correctly.
If you have more than one FFELP loan, you could potentially save money by consolidating your student loans. When you consolidate your loans, you end up with one loan payment and one interest rate. Tracking one payment is much easier than multiple student loan payments.
Consolidating your loans doesn’t automatically save you money, though. When you consolidate FFEL loans, your new interest rate is the weighted average of your previous loans’ rates. Any savings would be dependent on what interest rates you had on your loans originally.
If you consolidate your loans to a Direct Consolidation Loan, you have the option to also apply for one of the IDR plans mentioned earlier. Switching to a Direct Consolidation Loan and pairing that with an IDR plan will lower your monthly loan payments significantly.
When to refinance your FFEL loans
Looking to lower your student loan payments and pay off student loan debt faster? Consider refinancing your FFEL loans.
When refinancing student loans, your repayment term and interest rate will depend on your credit history, current salary, and debt-to-income ratio. But if you have good to excellent credit, you could qualify for a lower interest rate and potentially save thousands of dollars.
One caveat to refinancing student loans is that your federal FFEL loans will become private student loans. Because of this, you will lose several protections built in by the federal government. Those protections include:
- Loan Deferment
- Loan Forbearance
- Access to IDR Programs
Borrowers with poor credit may likely need a cosigner with excellent credit in order to qualify for student loan refinancing. But be aware that cosigners are on the hook financially if you default on your student loans. Be sure you’re able to make your payments on time so you don’t cause them any financial harm.
DO NOT refinance if you could qualify for the limited time PSLF waiver mentioned above.
Get help with choosing the right right repayment strategy for your FFELP loans
Wondering whether refinancing is right for you? Take our refinancing quiz to find out. Through our refinancing quiz, you’ll learn what plans and lenders are the right fit for you.
Just because your FFEL loans are an older program that’s no longer available doesn’t mean you aren’t still dealing with the challenges of paying off student loan debt.
Consider speaking to a Student Loan Planner® consultant to learn about your FFELP loan forgiveness options. It’s our goal to help you move past your student loan debt as quickly and efficiently as possible. It’s one of the most important financial decisions you’ll make so let us help you make the best choice.
Do you have FFELP loans? What has been your experience with them?