When President Biden first announced up to $20,000 of student loan forgiveness, details were sparse for FFELP loan borrowers.
FFELP loans are notoriously complicated because they are not eligible for all repayment plans and forgiveness programs. However, consolidation can sometimes address these issues.
The Department of Education recently released more detailed information on FFELP loans and the procedure for cancellation. While some questions remain unanswered, there is now enough information for most borrowers to move forward with a plan.
Biden Forgiveness/Cancellation for FFELP Loans
If you have federally-held FFELP loans, they are eligible for loan cancellation. If your FFELP loan currently has 0% interest and benefits from the payment pause, it is federally held. Borrowers in this category won’t have to take any extra steps because their loans are FFELP.
Things are a bit more complicated for borrowers with commercially-held FFELP loans.
Currently, the Department of Education is “assessing whether to expand eligibility to borrowers with privately owned federal student loans, including FFEL and Perkins Loans.”
Consolidation May Be Necessary
Even if the Department of Education ultimately decides not to forgive privately held FFELP loans, it is still possible for borrowers to have the debt forgiven.
Federal direct consolidation loans are eligible for cancellation. Thus, borrowers could consolidate their FFELP loans into a federal direct loan to qualify for forgiveness.
This is excellent news for the FFELP borrowers who want to take advantage of the Limited Waiver on PSLF or the IDR Payment Count Update. Because of these temporary programs, consolidation doesn’t restart the forgiveness clock. This makes consolidation less risky than in the past.
Does a new consolidation loan miss the deadline? To be eligible for forgiveness, the borrower must have had the balance by June 30, 2022. Some borrowers worry that a new consolidation loan will miss this critical deadline.
Fortunately, the Department of Education will cancel consolidation loans “as long as all of the underlying loans that were consolidated were first disbursed on or before June 30, 2022.”
FFELP Joint Consolidation Borrowers May Miss Out
FFELP Joint Consolidation Loans, often called spousal consolidation loans, are remnants of a program that Congress discontinued.
Borrowers with these loans cannot consolidate into a federal direct loan. Thus, they may not be eligible for forgiveness. However, it is still possible at this point that they qualify. If the Department of Education cancels privately-held FFEL loans, they could include spousal loans.
I think the FFEL Joint Consolidation Loans are the worst federal loans, and that Congress should fix the problem for the borrowers stuck with this debt. Now is a great time for borrowers with these loans to reach out to their elected representatives. Let them know you want a way to separate the debt and qualify for Biden Forgiveness.
FFEL vs. FFELP Loans
If you’ve been digging into this issue, there may be some confusion between FFEL and FFELP loans.
They are different acronyms, but they mean the same things. The loans refer to the Federal Family Education Loan Program. At times the Department of Education uses the FFEL acronym. Other times they use FFELP.
There isn’t a difference between FFEL and FFELP.
Federally Held Loans vs. Privately Held Loans
Over the last few years, the distinction between federally held loans and privately held federal loans has become significant.
All FFELP loans started as privately held federal loans. A private lender provided the money for the student loan and collected payments. The government guaranteed the debt — meaning if the borrower couldn’t pay, the lender still got paid.
The government wisely concluded that assuming all of the risks without getting much benefit was a lousy plan. The Department of Education terminated the FFELP program, and the government started buying back the existing FFELP loans.
If your FFELP loan is federally held, it means it qualifies for the newly announced forgiveness program.
The Best Strategy
This is one situation where there isn’t a one size fits all approach.
If you have FFELP loans, there are basically two options:
- Consolidate Now – Federal direct consolidation should get serious consideration from all FFELP borrowers. Getting the debt canceled is a question mark at this point, but the Limited Waiver on PSLF and the IDR Payment Count update are certainties. If you could benefit from these soon-to-end programs, now is the time to consolidate.
- Wait for More Information – If the only benefit of consolidation is qualifying for forgiveness, now is probably the time to wait. Questions remain unanswered, but we are likely months away from any major Biden Forgiveness deadlines.