Since March of last year, federal student loan borrowers weren’t required to make payments or pay interest on their student loans. However, millions of borrowers who had older Federal Family Education Loans (FFEL) may have been required to make payments. FFEL borrowers who didn’t make payments during this time could end up in an accidental student loan default.
Here’s what you need to know to determine if you have an FFEL loan, what benefits you are currently missing, what benefits you could miss out on, and what your options are for CoVID-19 student loan relief.
What is an FFEL loan?
An FFEL loan is a loan issued by a bank or lender but backed by the U.S. Department of Education. For instance, you may have applied for a federal student loan and received one from Wells Fargo. These bank loans haven’t been issued since January of 2010. Since I completed my education in 2007, all my original loans were FFEL loans.
When I consolidated my loans after graduation, I consolidated my federal loans with one of my lenders. Thus, my loans were then changed to a consolidated FFEL loan.
Which loans replaced FFEL loans?
Since 2010, direct student loans are issued directly from the federal government. FFEL loans that were consolidated in 2010 or later mostly became direct loans in consolidation.
How do you tell what kind of loan you currently have?
When you log in to the studentaid.gov website, you hover over your name and then click My Aid. Make sure you’re on the loans tab. Click on loan breakdown to see your loans. You’ll see a list organized by servicer and amount. You could have multiple loans by the same servicer. For instance, I have one consolidation loan for my unsubsidized loans and another for my subsidized loans, loans where the government pays my interest while in school at least half-time and other specific circumstances.
I clicked on the first servicer. Then, I clicked view loan details in the mini list. Right at the top, it tells me that this is a FFELP (Federal Family Education Loan Program) Consolidation Loan.
Note: When reviewing your list of loans, you’ll notice some have $0 balance. These are loans you paid off or consolidated. View all loans with a balance because you could have both FFEL and direct loans, depending on various reasons such as attending college from 2008 to 2012.
Are you eligible for a payment freeze or no interest payments due to the pandemic if you have FFEL loans?
The short answer is not automatically. FFEL lenders have an option whether or not to participate in this program. You’d have to ask your lender if they’ll freeze your payments. They get to decide whether they do or don’t. If they don’t freeze the interest, they may still offer to freeze payments through a disaster forbearance. This excused break from payments is renewed 90 days at a time by your request.
Suppose you consolidate FFEL loans with the Department of Education. In that case, your new loan is eligible for the payment and interest freeze from the time your loan is officially consolidated to when it expires. Currently, the expiration date is “at least September 30, 2021.” Because the Department of Education states at least September 21st, means the freezer could go on much longer. However, FFEL borrowers who consolidate to direct lending won’t get retroactive reversals of late payments or interest charges.
For instance, let’s say you stopped making payments when the initial payment freeze happened in March of 2020. You could be headed for default, or already in it, because of almost a year of missed payments. In this case, you’d want to reach out to your servicer immediately to make a payment or ask about options if you can’t afford your payments.
What other benefits do you lose eligibility for if you have FFEL loans?
Student loan forgiveness programs and certain income-driven repayment plans aren’t available if you have an FFEL loan. The Public Service Loan Forgiveness (PSLF) program is a prime example. Under PSLF, loans are forgiven after ten years of on-time payments while working for a public service employer. Over one-quarter of borrowers could qualify if with direct lending.
As far as income-driven repayment plans, Income-Based Repayment (IBR) is available but RePay as You Earn Expanded (PAYE) isn’t. For FFEL loans, IBR has payments that are 15 percent of discretionary income versus 10 percent under PAYE. The maximum time frame for repayment is 20 years for REPAYE versus 20 years for IBR for FFEL borrowers.
Could you miss out on $10,000 of student loan forgiveness?
If the president goes ahead and forgives $10,000 per borrower via legislation or executive order, he may leave FFEL loans out of the bargain. This won’t matter to you if you don’t meet income or other requirements. Keep following news reports on whether some sort of universal loan forgiveness will happen and proposed conditions. You are in a much better position for this if you consolidate with direct lending.
Are there any drawbacks to consolidating with direct lending?
The two drawbacks to consolidating with direct lending are your interest could rise a bit and your payment time frame restarts. Interest rates are rounded up to the nearest 1/8th percent. So if your interest rate on your consolidated FFEL loan is 3.85, it’s rounded to 3.875. This difference is well worth it if it opens up new benefits such as the payment and interest freeze.
The other drawback is your payment time frame restarts. For instance, you may have ten years left until your student loans are paid off with your current plan. However, the consolidated payment plan could be for up to 30 years. The good news is there is no charge for repaying student loans off early. But if you have five years left until your Income-based repayment plan is paid off, you probably shouldn’t start over.
When You Should Consider Private Student Loan Refinancing
If you don’t qualify for Public Service Loan Forgiveness or direct lending specific income-driven repayment options AND you’ve already gotten whatever loan forgiveness will happen due to the pandemic, you may want to consider refinancing privately if you can get a lower interest rate. Unlike federal student loans, available rates can change throughout the year and can be improved by your
Reducing your interest rate by a percent or more can easily save you months to years off repayment time frames. You can use our tool to compare offers from different lenders.
However, you may want to consolidate your student loans with direct lending first as a pit stop if part of your student loans are forgiven due to the pandemic. This pitstop can also give you time to improve your credit and potentially the rates offered to you.
Summary
- FFEL loans stopped being issued in 2010.
- FFEL lenders can decide at their discretion whether you receive a break from payments and interest accrual due to the pandemic. You must call them to have a chance of being considered.
- Consolidating your loans to direct lending raises your likelihood of being eligible for forgiveness and income-driven repayment programs only available to direct lending borrowers currently going on and in the future.
- When you consolidate, you will extend your repayment time period, but you can pay off your loans early at any time.
- Refinancing privately can permanently lower your interest rate. Only do so if you know you won’t benefit from federal student loan repayment and forgiveness programs.
Bottom line
In most cases, you should consolidate with direct lending if you have any chance of forgiveness. The biggest exception is if you are near completion on an Income-Based Repayment Plan or your income is too high for pandemic loan forgiveness possibilities. However, you won’t know this until after legislation is proposed. If lowering your interest rate is a concern, refinancing your student loan privately is the best way to go. Consider all options, but make decisions quickly since every month you wait could mean a loss of some of the benefits of a lower interest rate, reduction in interest charged, income-driven repayment options, or loan forgiveness.
Guest post by Reyna Gobel.
