Not all student loans are issued in the same way as some student loan in recent years, borrowers have been learning, and this has increasingly dire consequences. And in particular, one type of student loan continues to disappoint borrowers.
What are FFEL student loans?
The Federal Family Education Loan Program (FFEL) was one of the first federal student loan programs in the country. The FFEL program, also known as the “guaranteed” loan program, was created in 1965 to allow private commercial lending institutions to provide students with government-backed student loans. If borrowers fail to meet their FFEL loan commitments, the loan is secured by a government or non-profit guarantee agency that accepts the loan from the lender. The guarantee agencies, in turn, are supported by the federal government. Thus, historically, the risk to FFEL lenders has been low.
In 1994, Congress created the Federal Direct Loan Program. Rather than relying on private commercial lenders, under the direct lending program, the government will issue federal student loans directly to students through the US Department of Education. For 16 years, the direct lending program and the FFEL program operated as parallel lending operations for federal student loans throughout the United States. Borrowers may be eligible for Federal Stafford Loans, PLUS Loans and Consolidation Loans under one or both of the programs.
In 2010, President Obama ended the FFEL program, leaving the direct lending program the sole primary source of federal student loans. But millions of borrowers continued to have FFEL student loans that were issued prior to 2010, and many are still paying off those loans today.
FFEL Exclusion from Major Student Loan Programs
Because many of the most recent federal student loan assistance programs have been limited to direct loans only, FFEL borrowers are often excluded:
- Only direct federal student loans are eligible for government service loans forgiveness. FFEL loans are not accepted.
- Only direct federal student loans are eligible for borrower protection until maturity. FFEL loans are not accepted.
- Only direct federal student loans are eligible for certain income-oriented repayment plans such as Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), and Income Based Refund (ICR), all of which allow forgiving student loans … after 20 or 25 years of maturity. Both direct loans and FFEL loans are eligible for income-based repayment (IBR).
- Only government loans (which include direct loans, as well as FFEL loans that have been assigned or transferred to the U.S. Department of Education) are eligible for a student loan exemption under the CARES Act, which suspends payments, stops collection, and freezes interest until September. 30, 2021
In some cases, borrowers who have received FFEL loans may qualify for the above programs by consolidating their FFEL loans through the federal FFEL loan program. This effectively turns the FFEL loan into an outright loan. But outright consolidation of loans can have very serious consequences, including renewing the maturity of the loan, erasing any existing progress on loan forgiveness programs (such as IBR), and capitalizing all accrued interest. As a result, consolidation does not always make sense for FFEL borrowers.
Biden student loan forgiveness
Student loan borrowers, consumer advocates and progressive Democratic lawmakers continue to pressure President Biden to unilaterally decide on a complete cancellation of student debt through executive order. Although Biden has expressed some reluctance to go this route, the administration indicated he was considering this is an option.
There may be restrictions on what types of student loans Biden can cancel through an executive decision, if he even chooses to do so. While the Higher Education Act, which will regulate any executive powers to cancel broad student debt, applies to both FFEL and direct loans, it is unclear whether President Biden will limit his powers to federal loans, which the government administers directly.
Congress could pass legislation that would expand the exemption to include all types of student loans, but that would undoubtedly increase the cost of the program. It is unclear whether such a law will receive sufficient support in Congress.
How to check if you have an FFEL loan
If you are a federal student loan borrower and are not sure if your loan is an FFEL loan, you can access your federal student loan accounts at StudentAid.gov… After logging into your account screen, click the View Details button in the My Help field. You can click on the Download My Help Details link to view a breakdown of direct and FFEL loan balances.