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The federal government has suspended payments and interest on most federal student loans through at least Dec. 31, 2022, to help borrowers cope with the continuing economic impacts of the coronavirus pandemic.
If you have FFELP loans not held by the federal government, you can convert them into a federal Direct Consolidation Loan, which makes you eligible for coronavirus relief.
Let’s look into what FFELP loans are, whether they’re eligible for forgiveness, and what happens when the federal student loan payment pause expires:
- What are FFELP loans?
- Are FFELP loans eligible for forgiveness?
- Converting Perkins and FFELP Loans into federal Direct Loans
- Borrower protections
- Should I continue to make student loan payments?
- What happens when coronavirus relief expires?
- Student loan refinancing
What are FFELP loans?
Federal Family Education Loan Program (FFEL) loans were the first student loans available from the federal government. Although private companies issued these loans, they were still federally funded, and not classified as private student loans.
The four types of FFEL loans were:
- Subsidized Federal Stafford Loans
- Unsubsidized Federal Stafford Loans
- FFEL PLUS Loans
- Consolidated Loans
The federal government stopped issuing these loans in July 2010, replacing them with Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans, and Direct Consolidation Loans.
Are FFELP loans eligible for forgiveness?
Historically, FFELP loans weren’t eligible for forgiveness under any plan, including Public Student Loan Forgiveness (PSLF), Pay as You Earn, or Income-Based Repayment. But the Department of Education announced a change to the PSLF Program in late 2021, which modified requirements for relief.
The change applies to anyone with Direct Loans, as well as those who have Direct Consolidation Loans. If you have a Direct Consolidation Loan, you must submit a PSLF Certification and Application Form for approval. If your application is approved, the Department of Education will retroactively treat your qualified payments made under the FFEL Program in October 2007 or later as eligible for relief.
To receive these benefits, you must convert FFELP loans into a Direct Consolidation Loan before Nov. 1, 2022. You must also submit the PSLF Certification and Application Form for approval before Nov. 1, 2022.
What other federal student loans are eligible for relief?
The federal government suspended payments and interest from March 13, 2020, through Dec. 31, 2022, for three other types of federal student loans:
- Federal Direct Loans (Including PLUS Loans)
- Federal Perkins loans held by the government
- Defaulted Health Education Assistance Loan (HEAL) loans
Loans eligible for relief under this pause will receive a suspension of loan payments, a 0% interest rate, and stopped collections on defaulted loans. Unfortunately, there’s no coronavirus-related loan forgiveness for federal student loans.
Converting Perkins and FFELP Loans into federal Direct Loans
While FFELP loan payments are suspended, you may consider converting your Perkins and FFELP loans into federal Direct Consolidation Loans. When converted to a federal Direct Consolidation Loan, they become eligible for coronavirus relief under the current repayment pause.
Getting credit toward loan forgiveness
If you’re enrolled in an income-driven repayment plan, you’ll continue to receive credit toward loan forgiveness during the repayment suspension period. In addition, if you’re working full-time for a qualifying employer, you’ll also receive credit toward the 10 years of payments needed to qualify for Public Service Loan Forgiveness.
Getting credit toward loan rehabilitation
It’s important to keep in mind that entering into a new rehabilitation loan agreement during the coronavirus relief period won’t qualify you for credit toward your previous loan rehabilitation payments. Credit is only applicable for the suspended payments made after the new agreement takes effect.
However, if you’ve previously defaulted on your federal student loans and entered into a new rehabilitation loan agreement by making nine monthly payments, all your suspended payments will count.
Loan servicers have been instructed not to report borrowers to credit bureaus as delinquent while their payments have been suspended.
The Department of Education is also suspending “involuntary collection” on defaulted loans, and will refrain from garnishing wages, tax returns, or Social Security checks.
Should I continue to make student loan payments?
The suspension of monthly payments and the interest waiver on federal student loans is automatic — you don’t have to apply — and retroactive to March 13, 2020. Loan servicers have been instructed to place loans in administrative forbearance and stop collecting payments.
If you want to continue making payments on your federal student loans, you may be able to save money by paying them down faster. That’s because once you’ve paid any interest you owed before March 13, all your monthly payments will go toward paying down the loan principal.
Should you continue to make student loan payments even during the administrative forbearance? It’s not as simple as yes or no. On one hand, it does make financial sense to make interest-free payments. By paying down your principal balance, you can either pay off your loans sooner or potentially accrue less overall interest when the forbearance period ends.
On the other hand, if you’re still suffering from financial hardships caused by the pandemic, you could take this opportunity to redirect this money to a bill or payment that ensures you have the food, shelter, and items you need.
What happens when coronavirus relief expires?
The coronavirus student loan relief Congress provided through the CARES Act has been extended several times. But it’s impossible to predict if lawmakers will provide additional relief, such as broad loan forgiveness.
If and when coronavirus relief measures finally expire, federal student loan borrowers who are having trouble making their monthly payments can seek relief by enrolling in an income-driven repayment plan, or applying for deferment or forbearance.
Student loan refinancing
Federal student loans provide borrower protections that can be important during times of economic uncertainty, including access to income-driven repayment plans and the right to place loans in deferment or forbearance in some situations. If you’re refinancing federal student loans with private lenders, you’ll lose access to these programs.
However, incentives remain for refinancing private student loans at rates that are low by historical standards. Incentives to refinance include:
- Reducing monthly student loan payments by extending the loan term
- Reducing total repayment costs by refinancing at a lower interest rate
- Locking in a fixed interest rate by refinancing a private variable-rate loan with a fixed-rate loan
If the interest waiver on federally held loans expires on Dec. 31, 2022, many parents, professionals, and postgraduate degree holders repaying high-interest federal PLUS Loans may again have incentives to refinance.