Type J Student Loan: Forgiveness & Repayment Options

Borrowers with Type J Loans will need to consolidate their loans a second time into a Direct Consolidation Loan before they can qualify for President Biden’s broad debt cancellation, Public Service Loan ForgivenessPublic Service Loan Forgiveness (PSLF)A federal program that forgives the remaining balance on Direct Loans after 120 qualifying monthly payments made while working full-time for a government or qualifying nonprofit employer., and Income-Driven RepaymentIncome-Driven Repayment (IDR)A category of federal student loan repayment plans that calculate monthly payments based on income and family size rather than loan balance. Any remaining balance can be forgiven after 20–25 years of qualifying payments. Plan Forgiveness. Consolidating does not require a credit check and usually does not increase your current interest rate. But it can increase your principal loan balance, which could cause you to pay more interest in the long term.

Keep reading to learn more about the forgiveness and repayment options for Type J student loans.

Related: Will FFELP Loans Be Forgiven?

*Type O student loans are the subsidized portion of an FFEL Consolidation Loan.

Loan forgiveness options for Type J Loans

Type J Loans are federal loans, but the U.S. Department of EducationU.S. Department of Education (ED)The federal agency that oversees federal student aid programs, issues regulations for federal student loans, and is the ultimate lender on Direct Loans. usually does not own them directly. They’re often owned by a guaranty agencyGuaranty AgencyA state or nonprofit agency that administers defaulted FFELP loans and acts on behalf of the federal government in collecting those debts. and guaranteed by the federal government — a guarantee means that the government will step in and cover the agency’s loss if student loan borrowers fall behind on their monthly payments and defaultDefaultThe status of a federal student loan after the borrower has failed to make required payments for 270 days. Default can trigger collection actions such as wage garnishment, tax refund offset, and damage to credit reports..

The different ownership status means that Type J Loans and other FFEL Loans don’t automatically qualify for many of the student loan forgiveness opportunities the Biden administration announced. But there’s an easy solution: Direct LoanDirect LoanA federal student loan made directly by the U.S. Department of Education under the William D. Ford Federal Direct Loan Program. Most federal student loans issued since 2010 are Direct Loans. Consolidation.

Once the loans are consolidated, they become eligible for these three student loan forgiveness programs:

President Biden’s debt cancellation plan would reduce borrowers’ student loan debt by $10 thousand if they didn’t receive a Pell Grant, a type of financial aid available to low-income undergraduate students, and by $20 thousand if they did. The relief is only available to borrowers earning less than $125 thousand or married couples earning less than $250 thousand.

The Education Department will use the adjusted gross incomeAdjusted Gross Income (AGI)A borrower's total taxable income minus specific deductions, as reported on a federal tax return. Federal income-driven repayment payments are generally calculated using AGI. on your tax return for 2020 or 2021, whichever is lower, to determine your eligibility for this benefit. Learn more about the $20,000 student loan forgiveness program. Read more about the $20k student loan forgiveness.

The Limited Public Service Loan Forgiveness WaiverForgiveness WaiverA time-limited federal opportunity that lets borrowers count past periods of repayment, deferment, or forbearance toward PSLF or IDR forgiveness that would not normally qualify, often used to correct servicer errors and payment-count gaps. allows people who’ve worked full-time for the government or a nonprofit anytime after Oct. 1, 2007, to get credit towards PSLF. If you have an FFEL Stafford Loan, you’ll need to consolidate it into a Direct Loan before Oct. 31, 2022, to qualify for the waiver. Read more about the PSLF Waiver.

Income-driven repayment plan forgiveness writes off your remaining balance after 20+ years of making student loan payments under an IDR Plan. Later this year, the Education Department will retroactively credit millions of borrowers with additional payments toward IDR forgivenessIDR ForgivenessThe forgiveness of any remaining federal student loan balance after a borrower has completed 20 or 25 years of qualifying payments under an income-driven repayment plan, depending on the specific plan. using a one-time waiver and adjustment.

Related: IDR forgiveness

Borrowers will receive credit for payments made, regardless of which payment plan they were on at the time. Besides school deferment, the department will also count months spent on deferment before 2013 as qualifying payments. It will also consider forbearances of 12 consecutive months or more, as well as 36 cumulative months or more, toward forgiveness, for income-driven repayment and the Public Service Loan Forgiveness program. Read more about the IDR Waiver.

Related: FFEL Stafford Subsidized and Unsubsidized Loans: What Are They?

How to consolidate Type J Loans

Most borrowers with FFEL Consolidation Loans, or Type J Loans, can consolidate the loans a second time — even if they only have one loan — into the Direct Loan Program. The only people who can’t consolidate are those who have Joint Spousal Consolidation Loans or who have defaulted on their loan, been sued, and had a judgment placed against them.

Related: Spousal Consolidation Loan Forgiveness

You can apply for loan consolidation online at the Federal Student AidFederal Student Aid (FSA)The office within the U.S. Department of Education that manages federal grants, work-study, and student loans. It runs the FAFSA, the StudentAid.gov website, and oversees the federal loan servicers. website, studentaid.gov. You’ll need to create an FSA ID if you haven’t already done so. You can also submit a paper application to the student loan servicerLoan ServicerThe company that manages a borrower's federal student loan account, processes payments, and handles applications for repayment plans, deferment, forbearance, and forgiveness on behalf of the U.S. Department of Education. of your choice.

The consolidation process takes about 4-6 weeks to complete. If you’re applying for the PSLF Waiver or the IDR Account Adjustment, you’ll need to consolidate soon to take advantage of those temporary opportunities.

Learn More: Do FFEL Loans Qualify for PSLF?

Loan repayment options

If you decide not to consolidate your Type J loan, you can get a lower payment by enrolling in the income-based repaymentIncome-Based Repayment (IBR)A federal income-driven repayment plan that caps monthly payments at 10% or 15% of discretionary income, depending on when the loans were taken out. Remaining debt is forgiven after 20 or 25 years of qualifying payments. plan. Enrollment is open to any borrower with a partial financial hardship. For those with high incomes — above six figures — you may be able to score a lower monthly payment amount by switching to the Standard Repayment PlanStandard Repayment PlanThe default federal repayment plan, which spreads loan payments evenly over 10 years — or up to 30 years for consolidation loans. It usually results in the lowest total interest paid among federal plans. or the Extended or Graduated Plans.

Bottom Line

Type J student loans can be forgiven, but you may need to consolidate before that can happen. Let’s talk if you have questions about how to maximize your forgiveness options.

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