What Are Privately Held Student Loans?

A privately held student loan is a loan owned by a guaranty agency, private lender, or loan holder. These loans are sometimes still federal student loans made through the Federal Family Education Loan Program. They’re typically placed with student loan servicers like AES, Navient, and Nelnet.

Although they’re federal loans, they don’t automatically qualify for many of the cancellation and student loan forgiveness programs put in place by the Biden administration during the pandemic because they aren’t owned directly by the U.S. Department of Education, known as Ed-held loans. For that same reason, they also weren’t eligible for the coronavirus forbearance, which has halted payments and frozen interest rates on most federal student loans for the past two years.

Other times, privately held student loans are made by private lenders like Discover, Sallie Mae, and SoFi. Those loans are private student loans that have no affiliation with the federal government. They aren’t eligible for President Biden’s student loan forgiveness plan, Public Service Loan Forgiveness, or income-driven repayment plans. Read more about private student loan forgiveness.

Related: How to Get Rid of Private Student Loans

A privately held federal student loan is a student loan obtained through the FFEL or Perkins Loan Program. Privately held federal student loans were made by private lenders and schools but were guaranteed by the federal government if the borrower did not make their monthly payments and defaulted.

The FFEL Program was phased out to make way for Direct Loans. The Education Department purchased some loans. Others remained with private companies such as Ascendium, ECMC, or Trellis. There are now two types of FFEL Loans:

• Privately held, also known as commercially owned.

• Federally owned.

Federal student loan borrowers receive different protections and benefits depending on which type of loan they have.

Privately held student loans guaranteed by the federal government — i.e., FFEL Loans — qualify for some forgiveness and debt cancellation opportunities, but they must be combined into the Federal Direct Loan Program to get the most benefits.

Related: Which Student Loan Servicer is Best for Consolidation?

For example, earlier this year, the White House announced a plan to cancel $10 thousand in federal student loan debt for most borrowers and up to $20 thousand for Pell Grant recipients. At first, borrowers with privately-held FFEL Loans were told they didn’t need to do anything to meet the eligibility requirements to get the relief. But after six Republican-led states sued to challenge the plan, the Education Department reversed course and limited forgiveness to borrowers with Ed-owned student loans.

The department has also similarly limited relief to the Public Service Loan Forgiveness Program, the PSLF Waiver, and the IDR Waiver and Account Adjustment. Read more about FFELP loan forgiveness.

Privately held student loans not backed by the federal government and owned by private lenders may be forgiven if the primary borrower or cosigner becomes totally and permanently disabled. But they aren’t eligible for forgiveness because the borrower works in public service or has made student loan payments for the past two decades. These debt relief programs are only available for federal student loans.

Log in to the Federal Student Aid website, StudentAid.gov using your FSA ID to learn if your federal student loan is privately held. Select “My Aid” under your name. The next screen will display information on all your federal loans, including the loan balance, repayment status, and current loan servicer.

If your student loan is listed on StudentAid.gov, it’s a federal student loan — even if your servicer tells you it’s commercially owned or privately held.

Federal student loans that are privately held are placed with private companies that handle billing and other services on federal student loans. They are also responsible for explaining repayment options to borrowers, such as deferment, forbearance, and IDR.

The companies that have privately held-federal student loans are:

• American Education Services

• ECMC

• ECSI

• EdFinancial

• KHESLC

• Navient

• Nelnet

• Trellis

Borrowers with privately held federal student loans account for a small percentage of the 43 million federal student loan borrowers. These loans aren’t eligible automatically for many of the debt forgiveness programs announced by the Education Department, but they can qualify if they’re consolidated into a Direct Consolidation Loan.

Let’s talk if you want help finding the best student debt relief opportunities for your loans. Book a consultation today.

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