FFEL Loans: How to Get Them Forgiven

• You must consolidate your FFELP loans into a Direct Loan to become eligible for most federal forgiveness programs.

• The one-time IDR Account Adjustment, scheduled for completion by September 1, 2024, can bring you closer to loan forgiveness by crediting past repayment periods, deferment, and forbearance.

• Forgiveness is not automatic for FFELP loans; you need to actively consolidate your loans and choose an eligible repayment plan to qualify.

FFELP loans (also known as FFEL loans) can be forgiven after 20 years, but it’s not automatic. These Federal Family Education Loan Program loans, issued before July 2010, weren’t originally eligible for many forgiveness programs.

Recent policy changes by the Biden administration have created new debt relief opportunities, but many are ending or facing legal challenges.

Related: Biden Student Loan Forgiveness

As of September 2024, FFELP/FFEL borrowers have these student loan forgiveness options:

• One-time IDR Account Adjustment: This is the primary forgiveness opportunity. Scheduled to be completed by the U.S. Department of Education on September 1, 2024, this waiver brings many FFELP borrowers closer to forgiveness by giving them credit toward 20 to 25-year forgiveness for time in repayment, deferment, and forbearance.

• Biden’s “Plan B” Forgiveness: Announced for those who missed the one-time account adjustment. But like other recent initiatives, it may face legal challenges.

• Consolidation into Direct Loans: This allows access to income-driven repayment plans with forgiveness after 20 or 25 years.

• Public Service Loan Forgiveness: Available after consolidation and 120 qualifying payments while working for an eligible employer. You may be eligible for retroactive credit toward PSLF Forgiveness after consolidating.

The 20-year FFELP loan forgiveness opportunity works by combining the one-time IDR Account Adjustment with existing Income-Driven Repayment plans. Here’s how:

• If you consolidated your FFELP loans into a Direct Consolidation Loan by June 30, 2024, you will automatically receive credit toward 20- to 25-year forgiveness for past deferment, forbearance, and repayment periods.

• This adjustment is automatic once you consolidate into a Direct Loan. You don’t need to apply for it.

• If you missed the June 30, 2024 deadline, you may still benefit from Biden’s “Plan B” forgiveness. Details are still emerging, but it aims to help those who couldn’t take advantage of the one-time adjustment.

• After consolidation, choose an eligible IDR plan like the Saving on a Valuable Education (SAVE) Plan, Pay As You Earn (PAYE), Income-Based Repayment (IBR), or Income-Contingent Repayment (ICR).

• Continue making payments under your chosen IDR plan. The one-time adjustment may significantly reduce the time until you reach forgiveness.

• After a total of 20 years of qualifying payments (including credited time from the adjustment), your remaining balance is forgiven automatically for undergraduate loans only. If you borrowed loans for graduate school, you’ll need to have 25 years’ worth of qualifying payments.

• You won’t owe federal taxes on amounts forgiven through 2025. After that, forgiven amounts may be taxable. State tax rules vary.

Related: Do Student Loans Go Away After 20 Years?

FFELP loans, or Federal Family Education Loan Program loans, were federal student loans available from 1965 until 2010 when they were replaced by the Direct Loan Program.

Under the FFEL program, private lenders issued loans that were guaranteed by the federal government, making them a unique partnership between the Department of Education and private institutions.

The FFELP program offered several types of loans, including Federal Stafford Loans, (Subsidized and Unsubsidized Stafford Loans), Federal Grad PLUS Loans, Parent PLUS Loans, and Federal Consolidation Loans.

Although the program ended on July 1, 2010, as of December 31, 2023, approximately 8.26 million borrowers still hold outstanding FFELP loans, amounting to $185.4 billion in debt.

Many FFELP loans feature fixed interest rates that are often lower than those of other federal loans—sometimes even below 4%. This has led some borrowers to hesitate when considering consolidation, fearing that it might result in higher interest rates or changes to their monthly payments.

But these concerns are largely unfounded.

The interest rate on a consolidation loan is calculated based on the weighted average of the interest rates of the loans being consolidated. As a result, your new interest rate should remain effectively the same.

Your monthly payment might change if you were previously on a fixed payment plan, such as the graduated or extended repayment plans, and decide to switch to an income-driven repayment plan. This is because IDR Plans adjust your payment based on factors like family size, loan balance, and adjusted gross income.

Both FFELP Loans and Direct Loans are federal student loans, but they offer different benefits to borrowers. Commercially-held FFEL Loans typically have fewer forgiveness and repayment options.

FFEL Loans weren’t eligible for recent benefits like the COVID-19 payment pause, Biden’s initial $10,000 to $20,000 debt cancellation plan, the PSLF Waiver, or the one-time IDR account adjustment. They only become eligible for these benefits after Direct Loan consolidation. The difference is due to loan ownership. Private lenders own commercially-held FFEL Loans, limiting government control.

The government can only fully control FFEL Loans after the borrower defaults. At that point, it can buy the loan from the lender and offer expanded rights to the borrower. Direct Loans, owned by the government, have more flexible repayment options and forgiveness opportunities.

FFELP loans can be eligible for forgiveness, but the path isn’t always straightforward. Original FFELP loans are not directly eligible for most federal forgiveness programs. But they can become eligible through consolidation into Direct Loans, which opens up various forgiveness opportunities.

Here are the main forgiveness options that may apply to FFELP loans:

• Income-Driven Repayment Forgiveness: After consolidation and 20 or 25 years of qualifying payments, the remaining balance may be forgiven.

• Public Service Loan Forgiveness: Requires consolidation and 120 qualifying payments while working for an eligible employer.

• One-Time IDR Account Adjustment: Announced in 2022, this program aims to credit borrowers for past periods toward IDR forgiveness and PSLF. As of September 2024, implementation details and impact are still being clarified.

To be eligible for forgiveness after 20 years under IDR plans, you must consolidate your FFELP loans, enroll in an eligible IDR plan, and make qualifying payments for 20 years (25 years if you have graduate school loans).

FFEL Loans can qualify for the PSLF Program, but there are specific steps and requirements:

• You must first consolidate your FFEL Loans into a Direct Consolidation Loan to be eligible for PSLF.

• After consolidation, you can receive credit for previous full-time work with government and nonprofit employers.

• To have your loan balance forgiven, you must be working for a qualifying employer when you apply for forgiveness.

• If you’ve left public service or retired, you can still get PSLF credit, but you won’t be eligible for forgiveness until you return to qualifying employment.

• There’s no time limit on returning to qualifying employment. You can work for any eligible employer and then immediately apply for forgiveness if you’ve met the 120-payment requirement.

To make your FFELP loans eligible for most forgiveness programs, follow these steps to consolidate them into a Direct Consolidation Loan:

1. Obtain the Application: Due to legal challenges related to the SAVE Plan, the online consolidation process on the Federal Student Aid (FSA) website, StudentAid.gov, is temporarily unavailable as of September 2024. You must submit a paper application to Aidvantage, which handles all consolidations for every loan servicer. Obtain the application by contacting Aidvantage directly or downloading it from their website.

2. Complete the Application: List all the FFELP loans you want to consolidate. If you also have Perkins Loans or private student loans, note that only federal loans like FFELP and Perkins Loans are eligible for consolidation under FSA. Select your repayment plan, keeping in mind that the SAVE Plan is currently unavailable due to ongoing legal issues.

3. Select a Servicer: If you prefer a specific loan servicer, such as Nelnet, include instructions on the application for your consolidated loan to be transferred to that servicer after processing. Even if you want a different servicer, you must still send the completed application to Aidvantage for initial processing.

4. Submit the Application: Mail your completed application to Aidvantage. The consolidation process generally takes 30-60 days, during which your loans will be consolidated into a single Direct Consolidation Loan.

Related: How to Consolidate FFEL Loans

• Navient FFELP loans: Navient, a major student loan servicer of commercially held FFELP loans, announced on January 30, 2024, plans to transfer its FFELP student loan portfolio to MOHELA. This transfer has already started. Navient will retain ownership of the $38 billion FFELP portfolio, but MOHELA will manage operations and interact with borrowers. If you have Navient-serviced FFELP loans, expect communication about this change.

• FFEL Consolidation loans: These are slightly different from other FFELP loans. If you already have a FFEL Consolidation loan, you can still consolidate it into a Direct Consolidation Loan to access more forgiveness options. But your monthly payment amount may change — especially if you were in the Graduated or Extended Repayment Plan and are switching to an income-based repayment option. Use the Loan Simulator on StudentAid.gov to estimate your new monthly payment.

• Potential loss of borrower benefits: Some FFELP loans come with borrower benefits like interest rate reductions for on-time payments. These benefits may be lost upon consolidation, so weigh the pros and cons carefully.

 

You can get FFELP loans forgiven after 20 years, but you must take action. Here’s what you need to know:

• Consolidate your FFELP loans into a Direct Loan to access forgiveness programs.

• The one-time payment count adjustment may give you retroactive credit towards forgiveness.

• Consolidation resets forgiveness progress and might slightly increase your rate.

• FFELP loan policies are complex and constantly changing.

You don’t have to handle this process on your own. Our student loan experts can help you make the right choice for your financial future. Book a call today to get personalized advice and take control of your FFELP loans.