Some FFEL and Perkins Loans Aren’t Eligible for Student Loan Forgiveness: What Now?November 4, 2022
While President Biden’s loan forgiveness announcement was met with excitement and relief, some borrowers had questions about their eligibility. During the pandemic, borrowers with privately-owned Federal Family Education Loans (FFEL) or Perkins loans could qualify for the payment suspension and 0% interest waiver if they consolidated their debt with a Direct Consolidation Loan.
For those borrowers, it was believed that loan consolidation would allow them to benefit from loan forgiveness too. But at the end of September, the Education Department announced that borrowers with privately-owned FFEL and Perkins loans that consolidate their debt after September 29, 2022, weren’t eligible for the one-time loan forgiveness program.
What does that mean for you? Continue reading to find out.
President Biden’s One-Time Student Loan Forgiveness Program
In August, the Biden administration announced a new, one-time loan forgiveness program. Borrowers with eligible federal loans could get up to $10,000 of loan forgiveness (up to $20,000 if they received a Pell Grant while in school).
Who Is Eligible for Loan Forgiveness?
To qualify for loan forgiveness, borrowers must meet the following requirements:
- Loans: Only borrowers with select federal loans qualify:
- Direct loans
- FFEL loans held by the Education Department or in default at a guaranty agency
- Perkins loans held by Education Department
- Defaulted federal loans
- Disbursement: Only borrowers with loans disbursed on or before June 30, 2022, are eligible for the loan forgiveness program.
- Income: Borrowers are only eligible for loan forgiveness if they earn less than $125,000 ($250,000 for married couples and file a joint return).
What About Borrowers with FFEL or Perkins Loans?
The Coronavirus Aid, Relief, and Economic Security (CARES) Act set interest rates on federal loans at 0% and allowed borrowers to postpone making payments.
Originally, FFEL and Perkins loans were not eligible for the CARES Act benefits. But there was a workaround: if borrowers consolidated their loans with a federal Direct Consolidation Loan, they would be eligible for the CARES Act payment freeze and interest waiver.
When President Biden announced the new one-time forgiveness program, borrowers with FFEL and Perkins loans weren’t eligible. But as with the CARES Act’s provisions, borrowers could consolidate their debt. Once they consolidated their loans, they became Direct loans and were eligible for loan forgiveness.
If you consolidated your debt before September 29, 2022, your loans are eligible for the one-time forgiveness program.
But as of September 29, 2022, that workaround is no longer an option. The Education Department announced that borrowers with federal loans that the ED doesn’t hold aren’t able to qualify for loan forgiveness by consolidating their loans.
According to the Office of Federal Student Aid’s website, the Education Department is exploring other options to provide relief to borrowers with non-eligible federal student loans, but there is no definitive solution yet.
What to Do If You Don’t Qualify for Loan Forgiveness
If you have privately-owned FFEL or Perkins Loans that aren’t eligible for the Biden loan forgiveness program:
Pursue Income-Driven Repayment
While you aren’t eligible for loan forgiveness, you can still consolidate your loans with a Direct Consolidation Loan and become eligible for an income-driven repayment (IDR) plan. When you apply for an IDR plan, you can qualify for a much lower monthly payment because IDR plans have longer repayment terms and cap payments based on your discretionary income.
Explore Other Loan Repayment Assistance Options
Depending on your occupation and location, you may be eligible for repayment assistance programs offered through your state or employer.
Through these programs — usually geared towards teachers, medical professionals, and first responders— you can qualify for assistance with your loans in exchange for a work commitment.
Consider Student Loan Refinancing
If you aren’t eligible for loan forgiveness and have federal loans with high-interest rates, student loan refinancing is another option. You can refinance your debt with a private lender and potentially qualify for a lower interest rate or longer repayment term. Over time, refinancing can help you save money and manage your debt.
While some owned-FFEL and Perkins loans aren’t eligible for loan forgiveness, borrowers can consolidate their loans to take advantage of benefits like IDR plans. Federal student loans have benefits like forbearance and deferment. If you refinance your loans, they become private loans, and you are no longer eligible for those perks.
Use the student loan refinance calculator to determine how refinancing your debt will affect your monthly payments and total repayment cost.
Applying for loan forgiveness
If you had privately-owned FFEL or Perkins loans, you could qualify for loan forgiveness if you consolidated with a Direct Consolidation Loan prior to September 29, 2022. If you have other federal loans, such as Direct Subsidized, Unsubsidized, or PLUS loans, you are eligible for loan forgiveness even if you didn’t consolidate your debt.
The beta version of the loan forgiveness application is available now. The entire application takes just five minutes, and you can apply online.