Consolidate an FFELP Loan to a Direct Loan: How to Do It

FFEL Loans, also known as Federal Family Education Loans, can be consolidated into a Direct Consolidation Loan, providing access to income-driven repayment plans like Revised Pay As You Earn and Income-Based Repayment. This consolidation also enables eligibility for loan forgiveness programs, such as 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.

Usually, consolidation involves risks, like losing previously earned PSLF and repayment plan forgiveness credit. But the federal government has waived this penalty for those who consolidate before the end of 2023.

By consolidating before the deadline, borrowers can benefit from the IDR Account Adjustment, which maintains qualifying payments for loan forgiveness programs and grants bonus credit for certain forbearance and deferment periods.

Commercially-held FFEL loans — i.e., those loans with AES, Navient, PHEAA, and so on, can be consolidated into a Direct Consolidation Loan without including other eligible loans or even if the only loan they have is an FFEL Consolidation Loan.

For a limited time, all FFEL borrowers, including those with a current FFEL Consolidation Loan, are eligible for consolidation.

Related: Is Navient a Federal Loan?

Should I consolidate my FFEL Loans into a 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.?

Consolidating your FFEL Loans into a Direct Consolidation Loan can offer benefits, such as pandemic-related forbearance that has suspended payments and interest on federal student loans for three years. With President Biden extending the payment pause until next summer, consolidation may provide relief while waiting for the Supreme Court’s decision on loan cancellation.

Also, consolidating your FFEL Loans into a Federal Direct ConsolidationFederal Direct ConsolidationThe combining of one or more federal student loans into a single new Direct Consolidation Loan. Consolidation can restore defaulted loans to good standing, change the servicer, and open access to certain repayment plans and forgiveness programs. Loan may help you reach forgiveness sooner under the PSLF Program and IDR Waiver. Both programs grant bonus credit towards forgiveness for consolidated loans.

For parents with loans for their children, consolidating FFEL Loans into a Direct Loan makes Parent PLUS Loans eligible for the Income-Contingent RepaymentIncome-Contingent Repayment (ICR)The oldest federal income-driven repayment plan, with payments generally set at 20% of discretionary income or a fixed 12-year amount, whichever is lower. It is the only IDR plan available to Parent PLUS borrowers after consolidation. (ICR) plan. ICR links monthly payments for the new Direct Consolidation Loan to discretionary incomeDiscretionary IncomeFor federal income-driven repayment plans, a borrower's adjusted gross income minus a set percentage of the federal poverty guideline for their family size. Monthly IDR payments are calculated as a percentage of this amount. and family size, potentially lowering payments to zero, which could benefit struggling parents.

Related: Parent PLUS Loan Forgiveness Retirement

Can I consolidate an FFELPFederal Family Education Loan Program (FFELP)The federal program that guaranteed student loans made by private lenders through 2010. Loans issued under this program are commonly called FFELP loans and are still held by millions of borrowers. Consolidation Loan to a Direct Loan?

Yes, you can consolidate an FFEL Consolidation Loan into a Direct Loan through the Direct Loan Consolidation process. Regardless of your credit score, account status, or whether you have another federal student loan, you can convert your FFELPFFELP Loan (FFELP)A student loan issued by a private lender but guaranteed by the federal government under the Federal Family Education Loan Program. No new FFELP loans have been made since 2010, but millions of borrowers still hold them. Loans to a Direct Loan.

The only exception is if you are in 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. and actively being garnished.

But during the pandemic, all wage garnishments for defaulted federal student loans were halted, letting you consolidate your FFEL Loans into a Direct Loan today, even if your wages were being garnished before the pandemic.

Related: How to Consolidate Defaulted Student Loans

Is it too late to consolidate an FFEL Loan to a Direct Loan?

It’s too late to consolidate privately-held FFEL Loans to a Direct Loan so you can qualify for the PSLF Waiver and President Biden’s student debt cancellation plan. But you still have time to consolidate to reap the benefits of the IDR Waiver. This program gives you retroactive credit for any prior loan payments and time spent in deferment or forbearance towards a 20 or 25-year repayment plan forgiveness.

The Biden administration first said that borrowers whose federal student loans were guaranteed by the government but held by private lenders would be eligible for the one-time forgiveness action if they consolidated their debt into the Direct Loan Program. But the day after a legal challenge in Missouri was filed, 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. reversed course and, in doing so, sacrificed hundreds of thousands of borrowers with privately-held federal student loans.

According to 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, borrowers must have consolidated commercially held FFEL Program Loans before Sep. 29 to be eligible for the president’s debt relief plan.

How to consolidate FFEL Loans to Direct Loans

To consolidate your FFEL Loans to Direct Loans, follow these steps:

1. Visit StudentAid.gov and log in using your FSA ID.
2. Click “Loan Repayment” and then “Consolidate My Loans.”
3. Give about 30 minutes to complete the consolidation application.
4. Select the loans you wish to consolidate, including any FFEL Program or Federal Perkins Loans.
5. Choose a student loan servicer, which is a company responsible for handling billing and other services on your account.
6. Pick a repayment plan, such as any of the different types of income-driven repayment or another repayment option that fully pays your loan balance. If you’re seeking loan forgiveness, select an IDR option.
7. Carefully read the promissory notePromissory NoteThe legal contract a borrower signs to receive a loan. It sets out the amount borrowed, the interest rate, repayment terms, and the borrower's obligations to the lender. and repayment terms before submitting the form online.
8. Continue making student loan payments or ask that your account be put into forbearance until your 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. confirms the consolidation is complete.

Is FFEL consolidation the same as student loan consolidation?

FFEL Consolidation refers to the consolidation of Federal Family Education Loans (FFEL) through the Federal Family Education Loan Program. Even if you already have an FFEL Consolidation Loan, it’s still possible to consolidate your commercially-held FFELP Stafford Subsidized and Unsubsidized Loans into a Direct Consolidation Loan.

Once you’ve consolidated your loans, your new loan will have a fixed interest rate for the life of the loan. The rate will be based on the weighted average of your current loans rather than your credit score. This differs from private student loanPrivate Student LoanA student loan issued by a bank, credit union, or other private lender rather than the federal government. Private loans generally lack federal protections like income-driven repayment and broad forgiveness programs. refinance, where your interest rate is based on your creditworthiness.

FFEL consolidation differs from private student loan consolidation

FFEL Consolidation involves consolidating Federal Family Education Loans through the Direct Loan Program, while private student loan consolidation involves consolidating federal or private student loans through a private lender. As a result, FFEL consolidation offers benefits such as access to federal student loan repayment plans, loan forgiveness programs, and deferment and forbearance options that aren’t available with private student loan consolidation.

Related: Will Graduate Student Loans Be Forgiven?

Bottom Line

Consolidating FFEL Loans into a Direct Loan may be the best option for you to take advantage of better repayment and forgiveness options. Although the window is quickly closing, there is still time to consolidate student loans before the end of 2023. Taking the time to consolidate now could make all the difference in paying off your student loan debt.

Understanding all the options available and the potential consequences of consolidating your loans is important. If you are considering consolidation, schedule a time to speak with me to help guide you through the process — or do it for you. That way, you can ensure you get the right solution for your financial future.

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