Are you still repaying FFEL loans? If you have student loan debt from loans received before 2010, there’s a good chance you have an FFEL.
Despite the FFEL program ending in 2010, there is still a massive amount of outstanding student loan debt stemming from the program. In fact, as of Q3 of 2018, FFEL accounts for $288.6 billion of outstanding student loan debt for 13.8 million borrowers.
Here’s what you need to know about FFEL loans, your repayment options and whether FFEL loan forgiveness programs available.
Editor’s Note: FFEL loans come in two forms: federally own and commercially owned. The first qualifies for $0 a month payments with 0% interest until September 30, 2020 based on the new stimulus bill. The latter does not qualify unless it is consolidated into a Direct Consolidation loan, which eliminates any credit towards income based forgiveness programs. Getting this decision right could mean thousands of dollars in savings, so if you took out student loans before 2010, consider hiring one of our professional consultants for expert advice.
What is a FFEL loan?
FFEL stands for Federal Family Education Loan and 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 federally guaranteed student loans to students and parents. Also, the government mandated specific interest rate levels for all FFEL loans.
There are 4 types of FFEL loans that were available to borrowers during the program’s existence:
- Subsidized Stafford: Interest is paid by the government while students are in school as well as during periods of grace and deferment.
- Unsubsidized Stafford: 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: 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.
With the passing of the Health Care and Education Reconciliation Act of 2010, the program was discontinued and no new FFEL Program loans were made available after July 1, 2010.
The FFEL program was replaced by the Direct Loan program, which is the current student loan program run by the federal government. The main difference between the Direct Loan program and FFEL is that Direct Loans are run through the Department of Education, but funded by the US Treasury directly instead of funding through private lenders.
Can debt from FFEL loans be forgiven?
The good news is that you can qualify for FFEL loan forgiveness through a couple options. This will allow you to secure lower loan payments now and eventually wipe away your student loan debt in the future. These programs are worth looking into if you have large amounts of 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).
Please note that any previous payments made while loans were still under FFEL program wouldn’t count toward the 120 qualifying payments. Borrowers would 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.
Forgiveness through Income-Driven Repayment
Another repayment option FFEL loan borrowers can explore is signing up for an income-driven repayment plan mentioned above. With an IDR plan, if you make payments on any of the four eligible income-driven repayment programs for 20 to 25 years, your remaining student loan debt would be forgiven. 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 percent of your discretionary income, but never more than payments under a 10-year Standard Repayment Plan.
The IRS views forgiven loans in the IDR program as taxable income so keep in mind that there could be hefty tax implications if you’re pursuing FFEL loan forgiveness through IDR. Make sure you research each program carefully before choosing a plan.
Other repayment options for FFEL loans
If you do not qualify for FFEL loan forgiveness or you don’t want to carry student loan debt for 20-25 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.
Lower your student loan payments through the Extended Repayment Plan
One way to reduce student loan payments on FFEL loans is 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 and the amount would increase every 2 years for the life of the loan.
Payments would be much lower than your standard 10-year federal student loan. If you were an Arizona resident who graduated from a four-year for-profit private school with $34,722 in student loan debt (the national average) at 3.900% interest, your monthly payments would be $350 for 120 months (10 years).
If you chose the Extended Fixed repayment plan, your monthly payments would stay at $181 for the entire 300 months. If you went with the Extended Graduated plan instead, 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 FFEL loans is the Income-Sensitive Repayment Plan. This plan is not as well known as some other repayment options because it is 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, which means if you choose to have lower monthly payments early on, your payments could be extremely high toward the end of your loan term to compensate. 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 FFEL 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.
Refinance your FFEL loans
If you are looking to lower your student loan payments and pay off student loan debt faster, consider refinancing your FFEL loans. If you have good to excellent credit, you can get your interest rate lowered and could potentially save thousands of dollars in interest fees.
When refinancing student loans, your repayment term and interest rate depend on your credit history, current salary, and debt-to-income ratio (your ratio of monthly debt, like student loans, credit cards, rent or mortgage compared to your monthly income).
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 and in full so you don’t cause any financial harm to your cosigner.
Wondering whether refinancing is right for you? Take our refinancing quiz to find out. Through our refinancing quiz, you’ll learn what plan 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 challenges of paying off student loan debt.
Consider speaking to a Student Loan Planner consultant to learn about your FFEL loan forgiveness options; it’s our goal to save you money so that you can move past your student loan debt as quick as possible. It’s one of the most important financial decisions you will make so let us help you make the best choice.
Do you have FFEL loans? What has been your experience with it?