For many years, FFEL loans have caused headaches for borrowers seeking Public Service Student Loan Forgiveness.
Many borrowers spent years working in public service only to learn that their time didn’t count because FFEL loans are not technically eligible for PSLF. Consolidation fixes the eligibility problem, but the standard rule means that borrowers have to start the student loan clock from scratch.
Fortunately, temporary changes made by the Department of Education allowed borrowers to count their time before and after consolidation towards the required ten years of service. Sadly, this program is now over — kind of.
If this all sounds confusing, you have come to the right place.
The Standard Rules for FFEL Student Loans and PSLF
Let’s start with a basic fact: Federal Family Education Loans (FFEL) are not eligible for Public Service Student Loan Forgiveness.
The way to fix this issue is federal direct consolidation. Federal consolidation eliminates the old FFEL loan and replaces it with a new federal direct consolidated loan.
Sadly, the standard rule means that time previously spent at a PSLF-eligible job won’t count toward the required ten years.
However, there are temporary fixes to help borrowers get around this issue.
The Expired Temporary Rules for Getting FFEL Loans to Qualify for Public Service Loan Forgiveness
Starting in late 2021, and lasting until October 31, 2022, borrowers had the temporary opportunity to consolidate their FFEL Loans without losing PSLF progress. This was part of the Limited Waiver Program.
I share this information not to rub salt in a wound, but to help you make sense of what you may have learned elsewhere. The Limited Waiver program is expired and not likely to return.
The One Remaining Temporary Program
In early 2024, the Department of Education will be doing a one-time update on IDR counts.
This is obviously part of a larger program for all federal borrowers — not just FFEL borrowers and not just PSLF people.
However, within this one-time update, there is a huge perk for borrowers with FFEL loans who want to pursue PSLF. If you want prior credit for PSLF work on an FFEL loan, you need to consolidate your loans before April 30, 2023.
A Quick Recap: The standard rule for FFEL borrowers in PSLF jobs is bad. There was a temporary program to fix this issue, but that temporary program expired.
A new temporary program was created, and that new program will be available until April 30, 2024.
FFEL Loan Example
Today’s topic is one of the more advanced federal student loan issues, but it affects many borrowers and is an easy mistake to make.
Let’s start with what a common scenario looked like under the old rules:
- The borrower gets $200,000 to pay for medical school (though this issue applies to any graduate program).
- The borrower takes a public interest job, intending to have student loan debt forgiven after ten years.
- To qualify for public service forgiveness, the borrower signs up for a repayment plan based on their income.
- The lender tells the borrower that their payments will count towards the 120 payments needed for public service forgiveness.
- After several years of making these payments, the borrower learns that because some of the loans were graduate PLUS loans made under the FFEL program, they are not eligible for public service student loan forgiveness.
- The borrower has to make student loan payments for several years extra because of this mistake.
As a result of this sequence, many borrowers lost years that could have helped qualify for Public Service Loan Forgiveness. Both the Limited Waiver and IDR Count update helps borrowers with this issue.
The Issue with FFEL Loans and Public Service Student Loan Forgiveness
The most frustrating part about this example is the fact that this borrower could have had all their loans eligible for public service forgiveness had they consolidated from day one.
Many customer service representatives did not understand this wrinkle in student loan law. It is a classic example of the dangers of relying on your student loan servicer.
What loans does this apply to?
This is an issue most commonly associated with FFEL loans, but it also applies to Federal Perkins Loans. The Federal Family Education Loan Program was in existence from the mid-’60s until 2010. Under the FFEL program, borrowers got federally insured loans through private companies.
If you received a Stafford Loan or a Graduate PLUS loan before 2010, you probably have an FFEL loan.
What to do with FFEL Loans?
Borrowers can include FFEL Loans (with the notable exception of Parent PLUS loans) in a federal direct consolidation. By consolidating, the FFEL loan becomes a Direct Loan eligible for forgiveness under the Public Service Loan Forgiveness (PSLF) program.
Even though the Limited Waiver program is over, borrowers may still wish to consolidate to take advantage of the IDR Count Update.
A Note from the Sherpa: Handling FFEL loans is not the only factor to think about when consolidating federal loans. Borrowers should understand the consolidation process and exercise special care with Parent PLUS loans.
How do I avoid screwing this up?
If you have multiple student loans, go to the National Student Loan Database. Look for any Stafford, Perkins, or PLUS loan. Better yet, call or write your lender, and go loan by loan to verify whether your loans are federal direct loans or FFEL.
One way to check whether or not you are doing things right would be to have some of your payments certified towards PSLF. If you can only get some loans certified and other loans don’t count, you may have an FFEL problem.
This is not an easy subject, but by identifying that you might have an FFEL problem, you can ask the right questions to your lender and get things under control. You can also warn your friends who may have the same issue.