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FFELP Loan Forgiveness: Everything You Should Know In 2022

FFELP loan forgiveness

The FFELP was one of the initial student loan programs in the United States. However, it came to a halt on July 1, 2010. Because of that, if you want an FFELP loan forgiveness, you may run into complications. 

As of now, there are still borrowers with massive outstanding debt from the FFELP program. If you have FFELP loans, this guide will show you everything you need to know, including how to get FFELP student loan forgiveness.

But before we begin, here’s an important notice: 

Biden’s Executive Action On FFELP Loan Forgiveness 

The Biden administration released an executive action on October 6, 2021, that significantly impacts borrowers with FFELP loans employed in a government or non-profit job. And you may get a tax discharge for free.  

Your entire loan total will be wiped away tax-free if you consolidate your student loans through the government’s Student Aid website. However, you should have made ten years’ worth of payments while employed full-time at a qualifying job.

You must also use the federal government’s PSLF support tool to certify your employment, and you must do all of this before October 31, 2022. The limited period is due to the Biden administration’s reliance on authority to undertake such broad measures during national emergencies. 

As a result, they must only be available for a short period. If you need help, this is the time to get it now. We can assist you; call 800-820-8428 for professional assistance. 

One more thing: Between March 13, 2020, and May 1, 2022, the government suspended payments, including interest on FFELP loans controlled by the U.S. Education Department. But this suspension doesn’t apply to FFELP loans that are commercially owned.

We’ll show you everything you have to know about FFELP loans, including your repayment options. And also, the best ways to get FFELP loan forgiveness.

What Is The FFELP Loan Forgiveness? 

After making a specific number of qualified monthly payments, you can have your federal student loans forgiven under the FFELP student loan forgiveness program. 

However, you must first consolidate your FFELP loans into a single Direct Consolidation Loan. Only then can you be eligible for loan forgiveness under the FFELP. After that, you must make 120 monthly qualifying payments. 

Then, apply for FFELP forgiveness after making 120 qualified monthly payments or payments for ten years.

The FFELP is an excellent approach to repay your federal student loans. Because you will be able to pay off your FFELP loans if you stay up with your monthly payments, FFELP debt forgiveness is a fantastic motivator to keep up with your payments. 

Furthermore, FFELP debt forgiveness is a helpful program that can assist borrowers with financial difficulties. 

Are FFELP Loans Eligible For Student Loan Forgiveness? 

As said earlier, FFELP was phased down in 2010, but borrowers are still repaying their FFEL loans. Therefore, if you want to receive student loan forgiveness, your FFEL loans will prevent you from doing so.

Only Direct Loans are eligible for forgiveness, not FFEL loans. Therefore, consolidate your FFEL debts into a Direct Consolidation Loan if you want to qualify for forgiveness. This transfers your loans to the Direct Loan program, allowing you access to all of the benefits and protections of Direct Loans. 

Then, you can enroll in a Public Service Loan Forgiveness or income-driven repayment plan. These two programs forgive your outstanding loan balances after a specified repayment period.

While combining your loans will help you get on the path to forgiveness, keep in mind that you’re starting over. PSLF needs 120 qualifying monthly payments, and income-driven repayment options might extend that time to 20 or 25 years.

But what is an FFELP loan? 

What Are FFELP Loans? 

FFELP loan forgiveness

The FFELP was a loan program that authorized private lenders to issue federal student loans. However, keep in mind that it’s different from the William D. Ford Federal Direct Loan (Direct Loan) Program. 

The U.S. Department of Education offers student loans directly to borrowers with direct loans. They then contract third-party loan servicers to collect federal loans.

FFEL loan borrowers still make payments on their student loans even though the program isn’t in existence.

Regarding the “FFELP” and “FFEL,” both terms are interchangeable and mean the same thing. The “P” in the Federal Family Education Loan Program stands for the program. Therefore, loans made through the FFEL program are known as FFEL Loans. 

During the program’s existence, there were four types of FFELP loans accessible to student loan borrowers:

Subsidized Stafford loans: With this loan, the government pays the interest while in school and during deferment and grace periods.

Unsubsidized Stafford loans: The government does not pay any interest on these loans.

Related: Which is Better: Subsidized Vs. Unsubsidized Loan?

Plus loans: These loans are available to graduate students and parents to assist with the cost of education.

Consolidation loans: Debts that combine multiple student loans into a single loan 

Now, all federal student loans come from the Direct Loan Program. 

How To Know If You Have FFEL Loans 

You most likely have FFEL loans if you had federal loans from 2010 or before. Although the federal government holds certain outstanding FFEL loans (called ED-held FFEL loans), the majority are still privately owned by corporations like Navient.

To find out what type of student loan you have, visit studentaid.gov. You can also use the site to check if a private corporation or the federal government manages the loans. 

Difference Between Commercially-Owned And ED-Owned FFEL Loans 

After the 2008 financial crisis, the Department of Education began purchasing some FFELP loans from private loan lenders to alleviate some of their liquidity issues.

However, during this period, the government didn’t purchase all FFEL loans. As a result, the student loan market began to refer to repurchased loans as ED-owned FFEL loans and non-repurchased loans as commercially-owned FFEL loans.

The FFEL program was eventually phased down in favor of the Direct Consolidation Loan program. This is the federal government’s current student loan program. Direct Loans differ from other federal loans in that they are funded directly by the U.S. Treasury rather than through private lenders.

Benefits Of FFELP Loan Forgiveness

There are numerous advantages to participating in the FFELP student loan forgiveness program. First, if you qualify for FFELP loan forgiveness, any outstanding debt on your loans will be erased, giving you a fresh start. 

You won’t have to worry about your loans anymore, and you’ll be able to spend the time you would have spent making payments on something more worthwhile. 

If you have financial difficulties, you may be eligible for FFELP loan forgiveness. However, many borrowers require assistance because their monthly salary is too high for FFELP Loans under standard repayment.

However, there are some disadvantages you need to look at. 

Drawbacks Of FFELP Loan Forgiveness 

FFELP loan forgiveness

  • To be eligible for FFELP loan forgiveness, you must combine your FFELP loans into a Direct Loan. In addition, you will be ineligible for FFELP debt forgiveness if you don’t reduce your debt.
  • FFELP debt forgiveness is only available if you make 120 qualifying monthly payments. You will lose your eligibility for loan forgiveness if you miss a payment or stop making payments.
  • The amount of FFELP loans that can be forgiven under this loan forgiveness is limited by the Department of Education.

Although the Department of Education doesn’t erase all loans in full, it will boost your monthly contribution to accomplish this goal if you’re in standard repayment.

FFELP Loan Forgiveness Options To Consider 

If you’re searching for FFELP student loan forgiveness, the following programs are worth looking into. If you don’t know which one works for your current situation, we recommend asking for an expert’s advice. Let’s begin. 

1. Teacher Loan Forgiveness 

You don’t have to take out a Direct Consolidation loan to qualify for FFELP student loan forgiveness.

For qualified teachers who work full-time for five years at a secondary school, elementary school, or educational service organization that assists low-income students, the Teacher Loan Forgiveness program gives up to $17,500 in student loan forgiveness. 

It’s worth noting that, unlike the PSLF program, the five years of service must be completed consecutively.

To be deemed a “highly qualified teacher,” you have to teach science, mathematics, or special education at any school listed in the TCLI Directory. However, even if you’re not a science, math, or special education teacher, you may be eligible for loan forgiveness of up to $5,000.

2. Public Service Loan Forgiveness (PSLF)

If FFEL loans are consolidated into Direct Loans, PSLF may be an option for you. Borrowers who apply for Public Service Loan Forgiveness can have any outstanding loan balance erased after making 120 eligible payments (not necessarily consecutive) while working full-time for a qualifying employer.

However, any payments made while the loans were still in the FFEL program won’t count toward the 120 required repayments under normal circumstances. As a result, borrowers would generally have to start again after consolidating their Direct Loans.

You must be on a qualifying repayment plan to qualify for PSLF, which includes the following income-driven repayment (IDR) programs:

3. FFELP Loan Forgiveness Through IDR 

Another FFELP loan forgiveness option is the income-driven repayment programs outlined above. In addition, your outstanding student loan debt can be forgiven in 20-25 years if you use an IDR plan. 

If you aren’t eligible for PSLF or don’t want to work for a non-profit or a low-income area, this is an excellent option.

Consolidating your FFEL loans into a Direct Loan is required to repay student loans via PAYE, REPAYE, or ICR. However, if you decide to keep your FFEL loans, IBR is the only income-driven repayment option. 

Monthly payments under IBR will typically be 15% of your discretionary income but will never be higher than repayments under a 10-year standard repayment plan.

Because the IRS considers forgiven federal loans in the IDR program taxable income, obtaining FFELP loan forgiveness through IDR could result in significant tax consequences. 

So before you decide on a plan, make sure you thoroughly examine each program.

Other FFELP Repayment Options 

Closed School Discharge. This discharge forgives your FFEL Loans if your school closed while you were enrolled or shortly after you dropped out.

Total and Permanent Disability Discharge. Forgive your loan debt if you are totally and permanently handicapped, as determined by the Social Security Administration, a doctor, or the Veterans Administration.

Bankruptcy Discharge. If you can show that repaying your student loans is causing you undue hardship, your student debts will be discharged.

Make Use Of The COVID-19 Emergency Relief. While Ed-owned FFELP loans have always been eligible for COVID-19 loan forgiveness, privately-funded FFEL loans have not. President Biden’s administration, however, extended the relief to commercially owned FFEL loans in default in March 2021. As a result, some FFELP borrowers will now be eligible for a 0% interest benefit until May 1, 2022.

This new relief doesn’t apply to FFELP loans privately held that are still in good standing. It’s worth noting that the additional assistance for defaulted FFELP borrowers went into effect on March 13, 2020. That means that any voluntary contributions made after that date and any tax returns or garnished earnings may be refunded.

The Graduated Repayment Plan Can Help. This repayment plan allows you to make lower monthly payments at first, then increase them every two years for ten years (except with consolidation loans).

The notion is that as you work longer, your compensation will potentially rise. The Graduated Repayment Plan is designed with this in mind, thinking that you will be able to afford greater monthly student loan payments as your career progresses.

However, before you decide, it’s best to do your research as much as possible. Then, make an informed decision based on your current situation. Just because an option is viable doesn’t mean it’ll work for you. So it’s advisable always to seek an expert’s opinion. 

You Can’t Change Spousal FFELP Consolidation Loans Into PSLF.

FFELP loan forgiveness

As you’ve seen from this guide, payments made on FFEL program loans can now qualify for student loan forgiveness, which is one of Biden’s new PSLF expansion highlights. Under the initial eligibility requirements, this was not the case. 

To qualify for the additional benefit, FFEL borrowers must consolidate their debts through the federal Direct loan program before October 31, 2022.

A Joint or Spousal consolidation loan is one sort of FFEL student loan. The Spousal consolidation loan is a now-defunct scheme that permits two spouses to combine their federal student loan amounts into a single loan. Both spouses are jointly responsible for repayment.

Although the program has been phased out, some borrowers are still saddled with these loans. And that includes those who have since divorced.

Under current federal rules, you can’t consolidate joint spousal FFEL loans into a federal Direct Consolidation Loan. So that means you can’t qualify for PSLF. So Congress may need to pass legislation to solve this issue. 

The Best Time To Refinance Your FFELP Loans 

If you want to reduce your student loans, refinance your FFEL loans

When refinancing student loans, your payback period and interest rate will be determined by your current wage, credit history, and debt-to-income ratio. However, if you have fair to excellent credit, you may be eligible for a cheaper interest rate, saving you hundreds of dollars.

However, when you refinance your federal FFEL loans, they’ll become private student loans. As a result, you will lose numerous federal government benefits.

You will undoubtedly need a cosigner with good credit to qualify for student loan refinancing if you have bad credit. However, keep in mind that your co-signer would be financially responsible if you fail on your student loans. Therefore, to avoid causing them financial hardship, make sure you can make your payments on time.

If you qualify for the above-mentioned limited-time PSLF waiver, don’t refinance.

Final Thoughts 

If you want an FFELP loan forgiveness, you’ll need to consolidate your student loans using a Direct Consolidation Loan. However, consider your options thoroughly before making a decision. Consolidating your debts to qualify for a forgiveness program resets your payback period, so if you’ve already been paying for ten or 20 years, the chance of forgiveness may not be worth it. If you need assistance with student loan repayment, consider refinancing your loans to get a reduced interest rate, pay them off faster, or both. You won’t be able to use income-driven repayment plans or federal forbearance, but you might be able to pay off your loans with fewer fees.