For many Americans, funding a college education requires more than just savings and scholarships. Federal student loans play a major role in bridging the financial gap, and among these loans, the Family Federal Education Loan (FFEL) program once provided a major source of assistance. Although the program was discontinued in 2010, millions of borrowers still carry FFEL loans today. If you’re a borrower or helping someone navigate the complexities of student debt, understanding FFEL loans is crucial. This blog post explains the essentials of FFEL loans, from their history and structure to repayment options and how recent policy changes may impact borrowers.

What is the Family Federal Education Loan (FFEL) Program?

The FFEL program was established in 1965 as part of the Higher Education Act to make higher education more accessible for students and families. Through FFEL, private lenders provided federally-backed loans, with the federal government acting as a guarantor to reduce the risk to lenders. If a borrower defaulted, the government would cover some of the losses, making it more attractive for banks and financial institutions to offer student loans at lower interest rates.

Under FFEL, four types of loans were available:

1. Stafford Loans: These were the most common FFEL loans, available as both subsidized (interest covered by the government while the student is in school) and unsubsidized (interest accrues immediately).
2. PLUS Loans: These were provided to parents of dependent students, allowing parents to borrow funds for their child’s college expenses.
3. Consolidation Loans: Consolidation loans allowed borrowers to combine multiple federal student loans into one, simplifying the repayment process.
4. Perkins Loans: Although technically separate from FFEL, Perkins Loans were also subsidized by the federal government and offered to students with significant financial need.

The FFEL program made college affordable for millions of students by expanding access to federal loans through private lenders, but it also became complex due to the involvement of multiple parties, including the Department of Education, private banks, and guarantee agencies. This setup created a unique repayment landscape that continues to affect borrowers today.

Why the FFEL Program Was Discontinued

In 2010, the FFEL program was officially phased out through the Health Care and Education Reconciliation Act. The shift to the Direct Loan program was designed to simplify federal student lending, reduce costs, and eliminate the middleman. With Direct Loans, the federal government became the sole lender, managing all aspects of the loan process. This move streamlined student lending and allowed for direct policy adjustments, such as income-driven repayment plans and forgiveness programs. Although FFEL loans are no longer issued, millions of Americans still hold FFEL debt, and the terms and options for these loans can differ from those for Direct Loans.

FFEL Loan Repayment Options

For FFEL loan holders, repayment options depend on whether the loan is part of the federal Direct Loan program. Below are the primary options for FFEL borrowers:

1. Standard Repayment: This is a fixed 10-year payment plan, with monthly payments calculated to pay off the loan balance within a decade. FFEL borrowers typically default to this option, which often results in higher monthly payments but less interest over time.
2. Graduated Repayment: Monthly payments start low and gradually increase over time, usually every two years. This plan can extend the repayment period up to 10 years, offering some relief in early repayment years, which can be beneficial for graduates whose incomes are expected to increase.
3. Extended Repayment: Available for borrowers with over $30,000 in FFEL loans, this plan extends repayment to 25 years, with either fixed or graduated monthly payments. Extended repayment can significantly reduce monthly payments but increases the total interest paid over the life of the loan.
4. Income-Sensitive Repayment: Specific to FFEL loans, this option adjusts monthly payments based on a borrower’s income but does not extend the repayment term beyond 10 years. While Income-Sensitive Repayment can help make monthly payments more manageable, it’s generally less beneficial than Income-Driven Repayment (IDR) plans available to Direct Loan holders.
5. Income-Based Repayment (IBR): Though less accessible for FFEL loans than for Direct Loans, some FFEL borrowers qualify for IBR. This plan caps payments at 15% of discretionary income and extends repayment to 20 or 25 years. After that, any remaining balance is forgiven. However, FFEL borrowers may need to consolidate into a Direct Loan to qualify for other IDR plans and Public Service Loan Forgiveness (PSLF).

How FFEL Loans Are Affected by Recent Policy Changes

In recent years, federal policies have aimed to provide relief to student loan borrowers, including those with FFEL loans:

• COVID-19 Forbearance and the CARES Act: During the COVID-19 pandemic, FFEL borrowers with commercially held loans (i.e., held by private lenders) did not automatically qualify for the CARES Act relief, which suspended payments and set interest rates to 0%. Only FFEL loans owned by the federal government were eligible for these benefits, a disparity that led to calls for reform.
• Limited PSLF Waiver and the IDR Account Adjustment: In October 2021, the Department of Education introduced a temporary PSLF waiver allowing FFEL borrowers to consolidate their loans and gain credit for past payments, even those made on non-qualifying plans. Additionally, the 2022 IDR account adjustment allows FFEL borrowers to receive credit toward forgiveness for time spent in repayment, deferment, or forbearance, which may reduce the number of payments needed for IDR forgiveness.
• Fresh Start Initiative: For FFEL borrowers in default, the Department of Education’s Fresh Start initiative offers an opportunity to bring loans back into good standing, restoring access to repayment options and loan forgiveness programs. The Fresh Start initiative allows FFEL borrowers in default to resume payments without penalty and potentially improve their credit scores.

These policy adjustments have made it easier for FFEL borrowers to benefit from relief and forgiveness programs, but they often require proactive steps like loan consolidation. Staying informed about these changes can help FFEL borrowers make decisions that align with their financial goals.

Final Thoughts

Although the Family Federal Education Loan program ended in 2010, FFEL loans continue to impact millions of borrowers. Understanding how these loans work and the options available for repayment, forgiveness, and consolidation can make a significant difference in managing student debt. Being informed about the latest policies can help you make the best choices for your financial future. Staying proactive about your FFEL loan options, especially amid changing policies, can be the key to navigating this form of student debt effectively.