What was the FFEL Program?

Jan 06, 2023 By Susan Kelly

Borrowers could get student loans under the Federal Family Education Loan Program, often known as the FFEL Program, until June 30, 2010. Commercial and state lenders provided loans under the FFELP program, but the federal government insured the loans. This indicates that if a borrower failed on their loan, the government would compensate for the loss by paying private corporations an interest subsidy.

During the height of the Great Recession, the federal government bought FFELP portfolios from several different lenders. Borrowers of the FFELP were not given the option of deciding whether or not they wanted their loans to be included in the transactions. The government now holds a portion of this debt in its financial portfolio.

According to the most current statistics provided by the Education Department, even though the federal government terminated the FFEL Program, there are still 11.2 million borrowers with FFELP loans with an outstanding balance of over 248.1 billion dollars. According to the opinions of many authorities, this debt may be due to the stringing together of forbearances, defaults, and longer periods as a consequence of enrolling in an income-based repayment plan. The Direct Loan Program is currently responsible for processing all federal student loans.

How Do I Know If I Have FFELP Loans?

In all likelihood, if you received a federal student loan before 2010, it was processed via the FFELP. Nevertheless, financial institutions like Navient hold the lion's share of outstanding FFELP loans. The federal government holds onto these loans and calls them ED-held FFELP loans. To find out whether your student loans are owned by the federal government or a private company, check out the studentaid.gov website.

FFELP Debt Repayment Options

Loans from the FFELP that have not been consolidated are eligible for the following:

  • Income-Dependent Forgiveness and Repayment Plans.
  • If the federal government retains the funds, the CARES Act payments and interest will be suspended.
  • Student loan forbearance and postponement of payments.
  • Student loan forbearance and postponement of payments.

Relief during the Pandemic for FFELP Borrowers

Borrowers of commercially owned FFELP loans currently in default have been granted respite from interest and collection efforts by the Department of Education. The relief measure may be applied to dates as far back as March 13, 2020; however, it will no longer be in effect after December 31, 2022. It is reasonable to believe that any money garnished from a borrower's salary or tax returns over this period would be repaid to them. Additional benefits of the relief measure include the following:

  • Borrowers who have already made voluntary payments on these loans are eligible to receive a return of the amounts they have already paid.
  • The guaranty agencies with FFELP loans that have been defaulted on will be instructed to adopt a 0% interest rate for borrowers.
  • Any loans that fell into default due to the epidemic will be restored to their original, excellent status.
  • The agency will write to the credit bureaus and request that they erase the default from the individuals' credit records.

Are FFELP Loans Eligible For Cancellation?

Vice President Joe Biden revealed a proposal to forgive up to $20,000 in student loan debt per borrower income less than $125,000 for solo filers and $250,000 for joint filers. Borrowers awarded a Pell Grant will have their loans reduced by $20,000, while those not awarded a Pell Grant will have their loans reduced by $10,000. You may be eligible for this cancellation if the federal government holds your FFELP loan and your payments have been temporarily suspended.

If borrowers of commercially held FFELP loans apply to combine their debts before September 29, 2022, they will be eligible. Borrowers who have commercially held FFELP loans and who also have a loan via the Direct Loan Program are only entitled to have their Direct Loan loan canceled out of their debt. This was a change in direction from prior advice concerning the eligibility of commercially held FFELP loans for cancellation. Over four million borrowers are carrying FFELP debt that commercial investors hold. Get in touch with the company that handles your servicer to learn more about your FFELP loan. More relief attempts may likely be made, but the Department of Education has not disclosed any specifics that would imply a strategy.

Can I Consolidate FFELP Loan?

In many instances, it is possible to consolidate an FFELP loan. You are not eligible for Direct Loan consolidation if you have previously completed a spousal consolidation — although you are free to restructure the terms of your spousal consolidation loan if necessary — or if you are currently engaged in active litigation or have a judicial judgment against you.

Even if you are qualified to combine your accounts, there are still certain downsides. When you consolidate FFELP loans into Direct Loan, any unpaid interest will be capitalized, increasing your loan's principal amount. If you consolidate your debt, you risk losing whatever ground you've gained toward having income-based payments forgiven.

Related Articles