The COVID-19 pandemic has exposed some interesting federal student loan technicalities, mainly around Federal Family Education Loans. The FFEL program issued federal student loans prior to 2010.
These loans came in two forms: federally owned and commercially owned, which is hard to differentiate immediately, and, until recently, it didn’t necessarily matter too much which kind you had.
Federally owned vs. commercially owned FFEL loans
Enter the CARES Act, which is offering student loan relief in 2020 to help people experiencing hardship related to the COVID-19 pandemic. Federal student loan borrowers were automatically placed in an administrative forbearance and their interest was set at 0% for their federally held loans until Sept. 30, 2020.
These specific terms quickly shined a light on loans that were not held federally because borrowers of private student loans, or commercially held loans, did not see their payments automatically stop or their interest rates drop.
Here’s an example of what FFEL descriptions could look like in a loan list:
What makes this confusing for borrowers is having an FFEL doesn’t automatically mean your loans aren’t federally held. This loan list has a collection of Stafford, or Direct, loans, which are held federally, FFEL loans that are federally held, and an FFEL loan that is not held federally, which still shows an interest rate and is still in repayment.
What’s even more confusing is that the servicer for all of these loans is Nelnet. The difference is who originated the loan, which is not always apparent through your online portal with your loan servicer.
You can view your complete federal loan list by logging into www.studentaid.gov to help you find out which of your loans are federally or commercially held.
Nonfederally held FFEL borrowers who are in need of payment relief still have a few options, however:
- Ask for forbearance. Keep in mind, interest will still accrue during forbearance.
- Consolidate. This option will convert your FFEL into a Direct Consolidation loan, which is a federally held loan and will be included in the CARES Act student loan payment relief.
When you should consolidate your FFELs during the COVID-19 pandemic
Keeping FFELs in the federal system has its benefits: payment flexibility through income-driven repayment plans, more generous forbearance availability, forgiveness opportunities, death and disability discharge eligibility, and taking advantage of federal benefits such as the CARES Act payment pause. Situations where consolidating your FFELs can make your situation even better could include:
1. If you work in public service and are pursuing Public Service Loan Forgiveness
One of the qualifications for PSLF is to have Direct loans. FFELs do not qualify for PSLF. Important note: Consolidation wipes away payment history. If you already have Direct loans with PSLF credit, you can exclude them from the FFEL consolidation.
2. If you want to participate in the CARES Act student loan payment relief
Consolidation typically takes between 30 and 90 days to process, and payments are not due during this time. Student Loan Planner’s experts have been seeing consolidations processed closer to 30 days lately, so if you wanted to convert your loans into federally held loans, you can do so and still participate in some loan payment relief until September 30, 2020, or later if the government extends this relief program.
3. If you want a lower IDR payment once payments resume
FFELs do not qualify for PAYE or REPAYE. Having FFELs in your loan list may increase your total payment even if you could have qualifying Direct loans on PAYE or REPAYE (10% of discretionary income), because your FFELs will default to the next best IDR plan, which would be IBR (at 15% of your discretionary income).
Remember though, consolidation wipes payment history, so if you’re pursuing longer-term IDR forgiveness, make sure your time frame isn’t negatively impacted or, if it is, that you’re okay with the trade-off of having a smaller payment with potentially a longer time frame than originally planned.
Though FFELs don’t qualify for the PAYE repayment plan, you can consolidate to open up eligibility to take advantage of the shortest maximum repayment period for an IDR plan: 20 years compared to 25 on REPAYE or IBR. You can be eligible for PAYE as long as you didn’t have any outstanding loans prior to Oct. 1, 2007.
4. If you need to extend or re-amortize your standard or extended fixed repayment plan
This situation is uncommon, but if you still have a significant student loan balance while in retirement — or gearing up for it — and the income-driven plan doesn’t decrease your payment, you can consolidate if you have more that one loan to re-amortize your repayment plan, which will drop your payment while extending your repayment period.
In the loan list example above, where someone had direct loans, federally held FFEL and a privately held FFEL, simplicity can be a reason to consolidate too. If you’d rather not have multiple loans, multiple payments, and maybe even multiple servicers, and you’d prefer to simplify your situation, go for it. Just remember that payment history is erased with consolidation if you’re considering PSLF or longer-term IDR forgiveness timelines.
5. If your loans are in default
To get out of federal student loan default you could consider consolidating your loan into a Direct Consolidation Loan. To do so, you’ll either need to make three on-time payments toward your defaulted loan before you consolidate it, or agree to an income-driven repayment plan on your new loan.
How to consolidate your FFEL program loans
If you think consolidation could make sense for your situation, you can complete the consolidation application online by logging into https://studentaid.gov/app/launchConsolidation.action. If you’re unsure, schedule some time with our student loan repayment experts.
Once logged in, click on the “consolidate my loans” section. You should see a long list of your loans. Check all the ones you want to include in the consolidation; you can choose all of them or specific ones. You can see the titles of each individual loan by hovering over the question mark box with your mouse so that the name will appear.
You’ll also be able to send your new consolidation loan to the servicer of your choice. Check what payment plan you want, and the whole process should take between 30 and 90 days for everything to transition over.
You can call the Department of Education’s Student Loan Support Center at 1-800-557-7394 if you have any questions or want help doing the consolidation.
Refinancing student loans during COVID-19
It could make sense for you to refinance your existing private student loans during this COVID-19 pandemic as long as you can improve your interest rate or you’re able to adjust your terms, if needed. Check out our cash-back refinancing offers to make the process even more beneficial.