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Consolidation of FFEL Federal Loans for Student Loan Forgiveness

FFEL student loans are not eligible for Public Service Loan Forgiveness. Federal Direct Consolidation can fix this issue.

Written By: Michael P. Lux, Esq.

Last Updated:

Consolidation of FFEL Federal Loans for Student Loan Forgiveness

FFEL student loans are not eligible for Public Service Loan Forgiveness. Federal Direct Consolidation can fix this issue.

Written By: Michael P. Lux, Esq.

Last Updated:

The rejection rate for Public Service Student Loan Forgiveness is a horrifying 99%. Some of the problems that lead to rejection can be easily fixed, while others are far more complicated. Issues with Federal Family Education Loan Program or FFEL loans are among the most serious because there is no way to correct prior mistakes.

FFEL loans are not eligible for Public Service Loan Forgiveness. However, they can be consolidated into a federal direct loan to become eligible. Consolidating the right loans at the right time is extremely important.

Addressing FFEL loans for purposes of loan forgiveness can be complicated because there is no one size fits all answer. For some borrowers, direct consolidation is an essential step. For others, it could be a huge mistake setting them back years.

FFEL Loan Example

Today’s topic is one of the more advanced federal student loan issues, but it is something that affects many borrowers, and the wrong mistake could result in years of extra student loan payments.

Let’s start with what the worst-case scenario looks like:

  • 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 upon 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.

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.

Here comes the most important sentence of this entire article: Some loans are not eligible for federal government public service forgiveness, but they can be made eligible if they are properly consolidated through federal government consolidation.

Many customer service representatives do not understand this wrinkle in student loan law. It is a classic example of why you can’t take financial planning advice from your student loan lender.

What loans does this apply to?

This is an issue with Perkins Loans, but it is most commonly associated with FFEL 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?

FFEL Loans (with the notable exception of Parent PLUS loans) can be included in a federal direct consolidation. By consolidating, the FFEL loan becomes a Direct Loan eligible for forgiveness under the Public Service Student loan forgiveness (PSLF) program.

One word of caution: If you have been making IBR payments towards a loan and then include it in a loan consolidation, the previous payments will not count towards student loan forgiveness. When you consolidate, you start your countdown to 120 payments from scratch. If you have already been making payments and are thinking about consolidating to get your FFEL loans eligible for forgiveness, it is important to weigh the pros and cons of your options… some previous payments may not count, but more loans become eligible for PSLF.

Due to issues with the “forgiveness clock” restarting after consolidation, the best practice for borrowers with FFEL loans is to consolidate immediately at the beginning of loan repayment.

Not all borrowers were advised to consolidate their FFEL loans right away. Delayed consolidation might reach the point where it is better not to consolidate at all. Borrowers who are close to student loan forgiveness for their federal direct loans should be cautious not to consolidate their direct loans with the FFEL loans. In some cases, it may be best to pursue forgiveness on the forgiveness-eligible direct loans and to shift to Plan B on the FFEL loans.

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.

If you have FFEL loans, get them consolidated as soon as possible so that you can start making payments on them that count towards Public Service Student Loan Forgiveness.

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.

About the Author

Student loan expert Michael Lux is a licensed attorney and the founder of The Student Loan Sherpa. He has helped borrowers navigate life with student debt since 2013.

Insight from Michael has been featured in US News & World Report, Forbes, The Wall Street Journal, and numerous other online and print publications.

Michael is available for speaking engagements and to respond to press inquiries.

31 thoughts on “Consolidation of FFEL Federal Loans for Student Loan Forgiveness”

  1. We have FFELP commercial loans paid over 70,000 so far and still owe 60,000. Our loans have been consolidated years ago, do we have any options? Also, Navient added the full amount of our payment as principal. Said the interest is pre-calculated. Is this legal?

      • Thank you! I will do that. They stated the interest is pre calculated, so are normal payment is 413.00 they took the 413.00 and added the full amount to balance. Normally about 280.00 is interest and the remainder goes to principal. It’s very confusing to me.

      • I’m still not certain what is going on, but if the entire $413 is being applied to your principal balance, it could be because of the federal student loan interest freeze. Due to the Covid-19, interest rates on federally held student loans are at 0% until at least October of this year.

      • Since our loans are thru Navient that are considered commercial. We only got 3 months of no payments back in 2020. We are accumulating interest. I think there needs to be a department outside of Navient that we can talk to about options. Thanks for your help.

      • My question is why did we get 3 months with no payments then we had to start back up in June I think? Did everyone regardless of the type of loan you gave get 3 months?

      • Hi Michael- thank you so much for your advice. Can you tell me what protections/relief would result by filing a report with the CFBP? Please see my note to Annette above re: my loan experience. Thank you!

      • Hi Jill – There are several potential benefits to the CFBP complaint. For starters, when the company responds, the person addressing your issue will normally have far more authority to fix things than the usual customer service representative does. Additionally, because the process is done under the supervision of a government oversight agency, lenders are more likely to be fair in their treatment. Finally, if there are a lot of complaints about the same company or practice, it could lead to a lawsuit brought by the CFPB on behalf of borrowers.

    • Hi Annette-I consolidated my Fed loans in 1999. I’ve paid $160k on a $60k loan and am not down to principal. Sallie Mae still owns loans, serviced now by Navient and guaranteed by the fed government. These loans are designed to fail and are guaranteed by the fed government. I’ve been writing many members of congress, etc. please do the same. The accounting practices are questionable. I’m asking for a federal audit of payments. While the rate is high at 8.125%…it’s not the rate. Interest is compounded daily I believe which makes the loan worse than a credit card, which explains why I’ve paid credit card debt and private loans faster. These loans go no where and need to be investigated. Thanks for sharing and good luck.

    • Hi Buckeye,

      If you read some of the other comments, it looks like you are not the only one with this issue.

      I try to respond to every question with answers based upon personal experience, however, this is an issue that I haven’t personally dealt with.

      That being said, I can’t think of a reason that would prevent you from putting a consolidated FFEL loan into a federal direct consolidation loan.

      However, I would encourage you to make sure it is the right move for you as you could lose progress towards student loan forgiveness as you would be creating a new loan.

      Hope that helps!

  2. Interested in you using your crystal ball a bit. I won’t hold you to it – I’m just looking for someone with better perspective than I have on the bigger game at play. The COVID-19 act left PSLF loans out of the equation when it came to being able to skip payments and not accumulating interest. There’s rumors around Washington about a broader forgiveness of up to a certain amount of student loans in the future. Should something like that happen, do you reckon that PSLF loans will again be left out of the picture? Because they’re private? This plays into how my partner and I think about possibly consolidating into a Federal Direct Loan. We’ve built up time with our loans on IBR, but we don’t want to miss out on something that might happen that would release us from a large amount sooner.

    Second, you mention 10 years of payments under IBR lead to forgiveness. However, I thought I had read it was 25 years. Which is correct? Neither my partner nor myself are looking at public service loan forgiveness – just the regular forgiveness for paying IBR for an ungodly amount of time!

    Thanks for your help and site!

    • Lots of good questions here, and a few things to clarify.

      First, the Department of Education has clarified things regarding PSLF and Covid-19 relief. The time during the payment and interest pause should count towards PSLF.

      Second, and I could be misunderstanding your question, but PSLF isn’t a type of loan. PSLF refers to Public Service Loan Forgiveness which could apply to any federal loan. There are not any private loans eligible for PSLF.

      Standard IBR forgiveness will take 25 years. Federal direct consolidation will restart that clock. However, federal direct consolidation may be necessary to qualify for PSLF, depend upon the loans that you have. This Guide to Federal Direct Consolidation should hopefully clear things for you.

      Best wishes!

      • I sincerely apologize. I got all my acronyms mixed up. The loans I was referring to were FFELP loans. The ones they gave to old-timers like me as Federal Stafford loans, etc. Can you answer again, please, with that data point fixed. Many apologies.

      • No worries. Your questions make more sense.

        Do you only have FFEL loans? I ask because the proposal I have most frequently heard regarding Covid-19 forgiveness would be a cap of $10,000.

        I suppose it is possible that Coronavirus loan forgiveness might apply only to federally held loans and thus not include FFEL loans. This treatment would be similar to the current interest and payment freeze.

        That all being said, we are speculating about the terms of a program that may never even exist. At this point, I don’t think I would give up on progress towards standard IBR forgiveness because there might be forgiveness that I might not qualify for based upon my current loans. However, it is possible that this approach could end up being a mistake… I just don’t see it as a likely sequence to be concerned about. Your best bet may to closely follow the news and developments. If this particular outcome starts to look more realistic, you can start the federal direct consolidation process.

      • Fair enough! Thanks for your time. I can contact my borrowers to see how much time I have on the IBR clock, right? Thank you again!

      • Yes. Your loan servicer should have that information available. You may also want to compare your payment records with what they tell you. It is possible they might make an error on the count.

        If possible, you may want to get their response in writing.

  3. Shortly after graduating grad school I consolidated all my Federally subsidized and unsubsidized loans. They are currently listed in my loan service provider’s account as FFELP loans. I am not sure how to interpret this article, since my already consolidated loans are listed as FFELP loans. I’ve already met the 10 year repayment threshold in a qualifying public service role. I was told by a previous loan holder that I would not qualify for forgiveness, so I sort of forgot about it. Is there a path forward here?

    • Have you already applied for PSLF? Before doing anything, I’d apply to have the loans discharged. I suspect your application will be rejected based upon your comments in this thread, but it is definitely worth trying.

      The program that you used to consolidate your loans into an FFEL loan no longer exists. I suspect that because your loans are not federal direct loans, you will have a huge challenge getting them discharged.

      There is a temporary expanded public service forgiveness program to help people who were on the wrong repayment plan, but I don’t think this program will help your situation. More details here: https://studentaid.gov/manage-loans/forgiveness-cancellation/public-service/temporary-expanded-public-service-loan-forgiveness

      I guess I see several options if your requests for PSLF are rejected:
      1) federal direct consolidation and start from the beginning
      2) aggressive repayment of the debt
      3) go after forgiveness based on the IDR plan you have been using (usually comes after 20 or 25 years worth of payments)
      4) Hope that new rules are issued to fix PSLF for people with FFEL loans

      • Thank you for the quick reply. Based on my earlier investigations, I feel like I am hearing the same as before. I don’t have that much left on my loans, so I will just pay them off as I had planned on doing when I took them out.

  4. What if you had Ford direct loans (eligible) and the student loan company consolidated you under FFEL without telling you that was the program?

      • I posted at the top of this thread, but think this situation described here is similar to mine. Here is a snap shot of what Navient has on my loan. I believe it was a direct federal loan that was consolidated within 18 months of graduation (Circa 2002) into a FFELP consolidated loan.

      • These were Stafford subsidized and unsubsidized loans that were consolidated. The consolidation took place in 2003, not 2002.

  5. When I called Nelnet in 2007 they told me I was in the right loan and on the correct repayment plan to have my loans forgiven under PSLF. They have records of this call and even the details of the conversation. The representative even apologized when she told me I have FFEL and not the qualifying Direct loans. What recourse do I have? I’m seeking legal help and even contacted my congressman. To make it worse I was on a 10 year repayment plan prior to calling and they moved me to income based repayment plan in 2007 so that I have a balance left to forgive after 10 years.

    Any insight is appreciated.

    • One step you can definitely take is to file a complaint with the Consumer Financial Protection Bureau. Reaching out to your state’s attorney general could also potentially be helpful.

      Unfortunately, there are many people in your situation who were given inaccurate information 10 years ago and relied upon it. I’ve not heard of any procedure that any loan servicer has in place to address these errors.


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