If you’re one of the many Americans with an older FFELP student loan who hasn’t taken part in any of the relief and/or forgiveness programs during the COVID-19 pandemic, then you may be feeling as though there is no hope for you. There is a way to pay off your FFELP student loans, and it is much more credible than most people realize (and at no cost).
Picture this – you’re making payments towards your student loans, and everybody else (who has federal loans) had their loan payments suspended due to a pandemic, and they weren’t paying any interest either. That just doesn’t seem right; it is not right. That is exactly what happened to millions of borrowers who had their FFELP loans commercially owned.
The Federal Family Education Loan Program (FFELP) represents how most Americans financed college from the mid-1960s until 2010. You used to borrow money from a private lender (such as Navient or Nelnet). The federal government guaranteed these loans, but you could not borrow money directly from the federal government. The federal government was not the lender but instead a guarantor. Even though the federal government guaranteed your FFELP student loan, it may not have been the owner of your loan. If the owner of your loan was not the federal government, that did not matter prior to the passage of the CARES Act.
In 2020, the COVID-19 relief package known as the CARES Act provided tremendous support:
- No minimum monthly payments (0).
- Interest at 0%.
- Automatic postponement of loan payments.
The trouble is, all this only applied to federal loans, which means that privately owned FFELP loans received no help from the CARES Act. Therefore, if you had a FFELP loan from a private lender, the normal payment process continued.
Because of this many consumers thought the only option for them had now been closed off completely—this isn’t true.
There is a loan type available called a Direct Consolidation Loan that allows a consumer to take their privately held FFELP loans and consolidate them into a new federal direct loan.
Thus, upon the consolidation of your existing loans into a direct loan, you now qualify for any federal relief options available to you in the past, present, and future.
The fact that you may hear about this in secret from others online does not make it a loophole—this is officially sanctioned by the Department of Education. The only catch is that there is absolutely no financial gain for the lender you are currently working with to provide you with this information. It is far more advantageous for them to maintain their current income by charging you interest.
Now, before you decide that this sounds too good to be true, let’s look at what will happen or rather what will be the effects of consolidation.
Consolidation does not happen overnight. You can expect the processing time to take anywhere from a month to two. And while consolidating your loans will definitely make things easier for you since you will have one payment with the same interest rate, there are some things you should consider before consolidating.
The first significant disadvantage of extending your loan term is that you will generally pay more interest in total unless you pay it off aggressively sooner. The second disadvantage of extending your loan term is that if you are currently working towards Public Service Loan Forgiveness or income-driven forgiveness, your progress toward those goals would be reset due to your consolidation. Since FFELP loans are currently at least 10 years old, resetting them may be a tough pill to swallow for some borrowers.
As such, there is no definitive “yes” or “no” answer to whether one should consolidate right now.
Given the current administration of Democrats and the ongoing discussions about student loan forgiveness, it is assumed that federally-held loans will be offered various programs through executive orders, stimulus bills and expanded forgiveness offerings. Historically, all of these programs have excluded privately-held FFELP loans from eligibility.
Thus, the gamble lies in deciding whether to hold on to your privately-held FFELP loans in the hopes that they will eventually become eligible for forgiveness, or to go through with consolidation and secure your place in the federal system.
Now that we’ve covered the reasons to consolidate, let’s conclude by discussing recommendations for those most likely to benefit from consolidation; although many articles would have led with this. If you’re within spitting distance of public service or income-driven repayment forgiveness, the sacrifice of resetting your clock likely outweighs their benefits.
If you do not expect to once again qualify for forgiveness in the foreseeable future, or not at all, there is no reason not to take advantage of a Direct Consolidation Loan. It also removes restrictions that would otherwise prohibit access to other options.
Let me reiterate this very clearly: Do not pay someone to assist you with consolidation. You can consolidate your loans for free; it always has been free; if anyone solicits payment from you for their help, please simply walk away from that person.
You can complete the consolidation task yourself on the Federal Student Aid website. You may call the Federal Student Aid phone number to speak with someone to assist you if you prefer to have someone assist you with the process.
FFELP loans were designed to make it affordable for people to go to college. In reality, however, they have contributed significantly to the current student debt crisis that we are now facing, so you should be entitled to the same level of relief as any other student loan borrower.
You may be interested to know the options available to you if a simple consolidation could enable you to move from ‘the sidelines’ to ‘the main game’.
The fact that this type of information is often hidden is precisely why it is so important for us to be sharing it!
