FFELP Loans: What Happened to the Program & How It Affects Borrowers

The Family Federal Education Loan Program (FFELP) was a program that offered federally guaranteed student loans through private lenders. The program ended in 2010 and all federal loans are now offered through the William D. Ford Federal Direct Loan Program instead.

There are, however, still millions of borrowers who owe on FFELP student loans. According to the Department of Education, FFELP loans account for 14% of the total federal student loan portfolio, which is now estimated at $1.6 trillion.

Let’s take a closer look at what FFELP loans are, what happened to the program, and how borrowers are impacted today.

In this guide:

• What was the FFELP?
• What happened to the program?
• How do I know if I have an FFELP loan?
• How repayment works for FFELP loans
• Can FFELP loans be consolidated?
• Do FFELP loans qualify for forgiveness?
• FFELP Loans vs. Direct Loans
• Are FFELP loans private or federal?

What was the FFELP?

The FFEL Program allowed private lenders to make education loans that the federal government guaranteed. The program was introduced by the Higher Education Act of 1965, to provide federal support to colleges and universities by making financial aid available to a broad range of students.

Through the FFELP, borrowers could qualify for a variety of loans, including:

• Subsidized Federal Stafford Loans
• Unsubsidized Federal Stafford Loans
• FFEL PLUS Loans
• FFEL Consolidation Loans

Again, no new loans have been issued through the program since June 30, 2010.

What happened to the program?

The FFEL Program came to an end with the passage of the Health Care and Education Reconciliation Act (HCER). The Act effectively ended the process of private lenders offering federally insured loans and transferred responsibility for administering loans to the Department of Education.

Prior to the passage of the Act, the federal government took over many of the outstanding FFELP loans during the 2008 financial crisis. That was made possible through the Ensuring Continued Access to Student Loans Act (ECASL).

The Department of Education did not purchase all of the loans, however, and a number of commercially-owned FFELP loans still exist.

In 2010, the William D. Ford Federal Direct Loan Program replaced the FFEL Program. The creation of the Direct Loan Program did not, however, eliminate balances for existing FFELP loans. If you have loans through the FFEL Program, you’re still obligated to repay them.

How do I know if I have an FFELP loan?

If you received federal student loans before 2010 and haven’t refinanced or consolidated them, you could have FFELP loans. You can visit the Federal Student Aid website or the National Student Loan Data System to find out what type of loans you have exactly.

If you find that you have FFELP loans, make note of the key details about your loans, including:

• Loan servicer’s name and address
• Original loan amount
• Current balance
• Interest rate
• Repayment plan

Knowing the details of your loans can help you come up with an appropriate strategy for repaying them. 

How repayment works for FFELP loans

Repayment terms for FFELP loans can depend on what’s specified in the terms of your promissory note. The promissory note is a legal document that outlines your obligations for repaying your loans. You would have signed this when the loans were originally disbursed.

The most important thing to know about FFELP loans is that repayment doesn’t stop just because the program ended. If you fail to pay FFELP loans, your account can end up in default.

Defaulting on federal student loans can damage your credit, prevent you from taking out new federal student loans, and result in an offset of your tax refund.

There are several repayment options for FFELP loans, including:

• Standard Repayment
• Graduated Repayment
• Extended Repayment
• Income-Driven Repayment

If you’re having trouble paying your loans you might consider applying for Income-Based Repayment (IBR) if you have Federal Stafford Loans. Under this program, your payments would be 10-15% of your discretionary income but never more than what they would be under the Standard Repayment plan.

FFELP loan borrowers are also eligible for other loan management options. For example, you may be able to request a forbearance period or consolidate your loans into a Federal Direct Loan. You could also refinance loans through a private lender in order to get more favorable repayment terms.

Can FFELP loans be consolidated?

FFELP loans can be consolidated through the Direct Consolidation Loan Program. Loan consolidation allows you to streamline monthly payments by making just one payment instead of several. You can also repay the new loan at one low, fixed interest rate that is the average of all the loans that are consolidated.

Consolidating FFELP loans can offer some advantages. For instance, consolidation can make your FFELP loans eligible for forgiveness, which we’ll discuss a little further on.

You’ll need to meet Department of Education guidelines to consolidate FFELP loans into a Direct Loan. If you have active litigation against you or you’ve already done spouse consolidation, you won’t be eligible. It’s also important to consider whether consolidating FFELP loans makes sense for you.

Consolidating could cause you to lose any rate discounts your lender offers for making automatic payments. Rolling old loans into a new loan could also complicate your efforts to seek loan forgiveness if you’re enrolled in an income-based repayment plan. Consolidating restarts the clock on your payment history.

The Department of Education is currently allowing borrowers to get credit toward forgiveness for their payments on commercially-owned FFELP loans, but only if they consolidate to a Direct Loan. This option is only being offered temporarily, although no end date has been set as of yet.

Do FFELP loans qualify for forgiveness?

As discussed so far, FFELP loans can qualify for loan forgiveness. There are a number of ways to make them eligible for forgiveness, including consolidating into a Direct Consolidation Loan. Once you consolidate loans you can enroll in an Income-Based Repayment plan.

IBR can lower your monthly payments to make them affordable for your income. At the end of the repayment period, which can last up to 25 years, any remaining loan balance can be forgiven. The drawback of IBR is that you might pay more in interest over the life of the loan.

You can also seek forgiveness through the Public Service Loan Forgiveness (PSLF) Program. That option is designed for people who are interested in pursuing careers in public service. Again, you’ll need to consolidate your FFELP loans into a Direct Consolidation Loan, then enroll in an IBR plan to qualify.

Once you’re in the PSLF program, you’ll need to make 120 qualifying, on-time payments toward your loans. Payments must be made while you’re working for a qualifying employer. If you can satisfy those requirements, the remaining balance on your loans can be forgiven.

Remember, you may be able to get credit for any payments you’ve made on an IBR plan toward loan forgiveness if you consolidate FFELP loans into a Direct Loan. The Department of Education has not named a firm deadline for when this fix ends so you may want to consolidate sooner rather than later if you’re aiming for forgiveness.

FFELP Loans vs. Direct Loans

FFELP loans are unique in that they’re originated by private companies but are guaranteed by the federal government. By contrast, with Direct Loans, the federal government both originates the loans and guarantees them.

Both FFELP loans and Direct Loans have fixed interest rates. Undergraduate borrowers who received the last round of FFELP loans were assigned an interest rate of 5.6%. By comparison, new undergraduate Direct Loans have a 4.99% interest rate.

The Department of Education limits the amount you can borrow through the Direct Loan program. There are annual limits based on your year of enrollment and dependency status. Borrowers are also subject to aggregate limits, which include any amounts borrowed through the FFEL Program.

Comparatively, the FFEL Program had lower loan limits overall. For example, in the last year FFELP loans were offered, a dependent undergraduate student in their first year of study could borrow no more than $3,500 in combined subsidized and unsubsidized Stafford loans.

Today, the same student could borrow $5,500 in subsidized and unsubsidized Direct Loans.

Both FFELP loans and Direct Loans are eligible for forgiveness. To get forgiveness for FFELP loans, you’ll first need to consolidate them into a Direct Consolidation Loan. By contrast, Direct Loans do not have to be consolidated beforehand to be eligible for forgiveness.

Are FFELP loans private or federal?

FFELP loans were originated by private lenders and backed by the federal government. So understanding whether your loan is private or federal might be a little confusing.

If you have a loan that’s commercially owned, it’s technically owned by a private company, such as Navient or NelNet. But the loan itself is still guaranteed by the federal government.

Again, keep in mind that your FFELP loans may be owned directly by the government if they were purchased during the buy up that happened during the 2008 financial crisis.

Regardless of whether your FFELP loans are government- or commercially-owned, you still have options for income-driven repayment plans, loan forgiveness, and consolidation. Understanding the different ways to manage your FFELP loans can help you find the plan that works best for your situation.

Learn more about federal student loans here.