The Federal Family Education Loan Program is one of the most confusing forms of federal student aid. People can’t even agree on an abbreviation. Some use FFEL while others use FFELP.
Technically speaking, FFEL loans are federal student loans issued by private lenders. In some circumstances, they work like federal loans. In others, they behave more like private student loans. For example, student loan forgiveness is an option, but like all other things FFEL, it’s complicated.
As an FFEL borrower, I personally experienced the mess and confusion caused by these loans. Even though the government ended the Federal Family Education Loan Program, many existing borrowers still deal with the chaos.
FFEL Loans are Federal and Private: FFELP Basics
Before getting into the specific rules for FFEL loans, it is probably helpful to explain why they are unique.
Private lenders funded FFEL loans. However, the federal government guaranteed the loans. In other words, if the borrower failed to make payments, the private lender could collect from the federal government. Think of it as though the federal government was the cosigner on the loans.
The government wanted private lenders to provide student loans, and by guaranteeing the debt, the government helped more borrowers qualify.
I’ll skip the politics of these loans, but it is worth noting that they were controversial, and the government eliminated the program in 2010.
Converting an FFEL Loan into a Federal Student Loan
Borrowers can convert an FFEL loan into a loan that is a “pure” federal loan. The required process is federal direct consolidation.
In a federal direct consolidation, the government pays off your existing federal student loans, including FFEL loans. The process replaces the eliminated with a new federal direct consolidation loan. The private lenders get their money back, and borrowers have a federal direct loan.
Borrowers use the federal direct consolidation process to qualify for preferred repayment plans and loan forgiveness. However, the process has risks. By consolidating your federal loans, you are creating a new loan. A new loan means borrowers lose the progress they previously made towards student loan forgiveness—this one of several federal direct consolidation mistakes to avoid.
A Special Note For Parents: Parents who borrowed a Parent PLUS loan under the FFEL program need to pay special attention to their consolidation strategy.
Including a Parent PLUS loan in a federal direct consolidation loan acts like a poison pill. The new combined loan can still qualify for some repayment plans, such as Income-Contingent Repayment, but it loses eligibility for other IDR plans like Income-Driven Repayment and REPAYE.
Parents with Parent PLUS loans and other federal loans should work closely with their servicer to find an optimal plan. Borrowers should understand the consolidation process and exercise special care with Parent PLUS loans.
FFELP Repayment Plans
Federal student loans have several great repayment options in the category of Income-Driven Repayment (IDR) Plans. The primary perk to IDR plans is that borrowers make payments based upon what they can afford rather than what they owe. These plans also qualify for a variety of federal forgiveness programs.
Unfortuantely, FFEL loans are not eligible for IDR plans like Revised Pay As You Earn (REPAYE). However, if borrowers use direct consolidation, the FFEL debt can qualify.
The challenge for FFEL borrowers is balancing the risks of federal direct consolidation with the benefits of preferred federal perks.
FFEL loans also have a unique repayment plan called Income-Sensitive Repayment or ISR. This plan is designed to help borrowers facing financial hardship. While it sounds like the other Income-Driven Repayment plans, it notably does not qualify for any student loan forgiveness programs. Because newer and better repayment options have entered the picture, few borrowers will find that ISR is the best option for their circumstances.
Public Service Loan Forgiveness and FFEL Loans
FFEL loans are not eligible for Public Service Loan Forgiveness (PSLF). However, they can be included in a federal direct consolidation loan and gain eligibility. Consolidation pays off the FFEL federal loan from a private lender and replaces it with a 100% federal student loan.
This site has previously explained how FFEL borrowers can earn PSLF.
Determining FFEL Loan Status
Because it has been over a decade since the Department of Education last issued an FFEL loan, borrowers may not know for certain the status of their loan.
One of the best ways to investigate the exact loan description and lending program is to check the Department of Education’s records. These records will show when the loan was issued, the amount borrowed, and the servicer in charge of the loans. Borrowers can access the federal records by following these steps.
My wife has a FFEL loan, so even though its a federal loan it’s considered private, she has been paying for over 10 years and has a balance of $11,000 will that be forgiven? She’s cant consolidate now since she has missed that deadline
We are still waiting on the details on FFEL forgiveness. Is possible that they will forgive these loans as well. It is also possible that she will be able to consolidate into a direct loan to get the balance forgiven.
Update 9/8/22: Here are the latest details on how they are handling FFEL loans.
Like Dan’s wife I also have an FFELP loan. Mine is serviced by Navient, and shows up on Studentaid.gov. I realize we are awaiting more details, but I’ve been given conflicting advice. On one hand I’ve been told to sit tight, but I’ve also been told to consolidate into a direct loan. I applied for the direct loan yesterday through studentaid.gov. Do you know anything about the deadline Dan is referring to? I’m trying to decide if I should cancel my direct loan application request. What are your thoughts?
The deadline Dan is referencing is the limited waiver on PSLF. If you have worked in a public service position, it is important not to miss the October 31, 2022, deadline.
As for the best approach, I’d lean towards consolidating now, because it may help you qualify for forgiveness and it will definitely help you benefit from the last few months of the payment and interest freeze. I’m also seeing reporting that FFEL loans will be covered in some manner by the forgiveness. I’ll be posting a more detailed breakdown on FFEL strategy in the next day or two.
Update 9/8/22: Here are the latest details on how they are handling FFEL loans.
I have a parent plus loan that is now thru AES.
80,000 AND STILL PAYING SINCE 2002.
Will I be able to reduce it by 10,000 with the new program Biden passed. My wife eligible too? our combined income under 100,000
The Department of Education hasn’t released the full details on loan eligibility, but right now, it is looking like federally-held Parent PLUS loans will be included.
Should we stay with private lender AMERICAN EDUCATIONAL SERVICES or apply federal consolidation?
It’s hard to say, because we don’t know what they will end up doing with the one-time forgiveness.
However, federal direct consolidation might be a good idea if it helps you take advantage of the IDR Count update scheduled for next year.