When President Biden first announced up to $20,000 in student loan forgiveness, details were scarce for FFELP borrowers.
FFELP loans are notoriously complicated because they are not eligible for all repayment plans and rebate programs. However, consolidation can sometimes solve these problems.
The Department of Education recently released more detailed information about FFELP loans and the cancellation process. Although some questions remain unanswered, there is now enough information for most borrowers to go ahead with a plan.
Biden Pardon/Cancellation of FFELP Loans
If you have Federally owned FFELP loans, they are eligible for loan cancellation. If your FFELP loan currently has 0% interest and is on the payment break, it is federally owned. Borrowers in this category will not have to take any additional steps because their loans are FFELP.
Things are a bit more complicated for borrowers with corporate-held FFELP loans.
Currently, the Ministry of Education “Evaluate whether to expand eligibility to borrowers with private federal student loans, including FFEL and Perkins loans.”
Consolidation may be needed
Even if the Ministry of Education ultimately decides not to cancel private FFELP loans, it is still possible for borrowers to obtain debt cancellation.
Federal direct consolidation loans are eligible for cancellation. Thus, borrowers could consolidate their FFELP loans into a direct federal loan to benefit from the forgiveness.
This is excellent news for FFELP borrowers who want to take advantage of the Limited Waiver on PSLF or the Updated number of IDR payments. Because of these temporary programs, consolidation does not restart the forgiveness clock. This makes consolidation less risky than in the past.
Is a new consolidation loan missing the deadline? To be eligible for the discount, the borrower must have had the balance before June 30, 2022. Some borrowers fear that a new consolidation loan will miss this critical deadline.
Fortunately, the Ministry of Education will cancel consolidation loans “as long as all underlying loans that have been consolidated have been first disbursed no later than June 30, 2022.”
FFELP joint consolidation borrowers may miss
FFELP Joint Consolidation Loans, often referred to as Spouse Consolidation Loans, are the remnants of a program that Congress discontinued.
Borrowers with these loans cannot consolidate into a Federal Direct Loan. So they may not be eligible for forgiveness. However, it is still possible at this stage that they qualify. If the Department of Education cancels FFEL loans held by individuals, they could include spousal loans.
I think the FFEL joint consolidation loans are the worst federal loans, and Congress should fix the problem for borrowers stuck with this debt. Now is the perfect time for borrowers of these loans to reach out to their elected representatives. Let them know you want a way to split the debt and qualify for Biden’s pardon.
FFEL vs. FFELP Loans
If you have dug into this issue, there may be some confusion between FFEL and FFELP loans.
They are different acronyms, but they mean the same things. Loans refer to the Ffederal Ffamily Eeducation Loan Pprogram. National Education sometimes uses the acronym FFEL. Other times they use FFELP.
There is no difference between FFEL and FFELP.
Loans held by the federal government compared to loans held by the private sector
In recent years, the distinction between federal loans and private federal loans has become important.
All FFELP loans began as private federal loans. A private lender provided the money for the student loan and collected the payments. The government guaranteed the debt, meaning that if the borrower couldn’t pay, the lender still got paid.
The government wisely concluded that taking on all the risk without reaping much benefit was a bad plan. The Ministry of Education terminated the FFELP program and the government began buying back existing FFELP loans.
If your FFELP loan is held by the federal governmentthis means he qualifies for the newly announced pardon program.
The best strategy
This is a situation where there is no one-size-fits-all approach.
If you have FFELP loans, there are basically two options:
- Consolidate now – Direct federal consolidation should be seriously considered by all FFELP borrowers. Obtaining debt cancellation is a question mark at this stage, but the Limited Waiver on PSLF and the Number of IDR payments update are certainties. If you could benefit from these programs that are ending soon, now is the time to consolidate.
- Wait for more information – If the only benefit of consolidation is to qualify for forgiveness, now is probably the time to wait. The questions remain unanswered, but we are likely months away from any major Biden pardon deadline.