Recent Press Brings Long-Defunct Student Loan Program into the Spotlight

Throughout the Covid-19 pandemic, student loans have consistently been in the news as different administrations have grappled with how best to manage the student debt crisis in the face of recent economic trials.

This has been especially true throughout the Biden presidency, as he has considered executive actions such as student loan cancellation, public service loan forgiveness, servicer accountability, and more.

After months of waiting, borrowers finally have good news as Secretary of Education Miguel Cardona announced that there would be an expanded PSLF period until Oct. 31, 2022.

This Limited Waiver Opportunity broadens the scope of borrowers eligible for PSLF to include many who were previously excluded. Among them are those who hold Family Federal Education Loans (FFELs), which have not been available to borrowers since 2010 and may be an unfamiliar term to many.

FFEL: A Decades Old, Abandoned Student Loan Program

When Congress created the first kinds of student loans, it was reluctant to lend government dollars directly to students, instead relying on private institutions backed by federal guarantees, which led to the Family Federal Education Loan.

The first government-backed loans available to students were Perkins Loans, created in 1958. They gave educational institutions the ability to lend money to students, guaranteed by federal dollars if the borrower defaulted.

Later, the Higher Education Act of 1965 created Guaranteed Student Loans, which gave banks the ability to disburse student loans that were also federally backed in the event of default. FFELs were one of these GSLs.

Later, in 1994, Congress created the Direct Loan, which was provided by the government directly to the borrower. FFELs and Direct Loans coexisted until 2010, when President Obama did away with the former, eliminating private lenders as middlemen in the federal lending system.

Borrowers Left Out of Public Service Loan Forgiveness

When Congress created PSLF in 2007, the program applied only to federal Direct Loans, leaving out millions of borrowers who had borrowed under the Perkins and FFEL programs. Borrowers could consolidate these older types of loans into a Direct Consolidation Loan and begin to qualify for PSLF, but it would essentially restart their repayment clock. That meant that—even though they could have their remaining loan balances forgiven after 120 qualifying payments—they would have to continue making payments for fully 10 more years: not an exciting option for most, especially given the rough track record of PSLF.

New Hope for FFEL Borrowers and PSLF Advocates

Under the recently announced Limited Waiver Opportunity for PSLF, FFEL borrowers have an opportunity to pursue PSLF without restarting the clock. As long as the other conditions for PSLF were met—full-time employment at a public service organization like a 501(c)(3)—previous payments made on FFELs will count towards PSLF as long as they are consolidated before October 31, 2022 and submit the appropriate employment paperwork.. Finally, borrowers under this orphaned loan program will be able to enjoy PSLF without the added hurdle of 10 extra years of repayment.

If you have FFEL loans, let us help you navigate the road to PSLF. Drop us a line for a free 15-minute evaluation of your situation, getting you on the right path to loan forgiveness.