Student Loan Related

Why Can’t I Get Out of This Trap of My Federal Family Education Loan

Written by Steve Rhode

Question:

Dear Steve,

Navient holds my 6 figures of student loans, that continue to get deferred and accrue ridiculous amounts of interest.

The minimum payment is not affordable for me and has never been. I worked for several years as a teacher hoping to take advantage of the teacher loan forgiveness program only to be told my loans were ineligible.

To add insult to injury I was then laid off from that teaching position on two occasions, which forced me to look for employment outside of teaching.

Over the years, I have modeled different payment options, but was also ineligible for any relief there as my spouse’s income is too high.

Apparently, I was also ineligible for the recent government program that was part of the CARES act due to the type of loans I have.

As you can see there has been one roadblock after another. At this rate, I will be paying for these loans until I am well into my 70’s. I have two kids who will be college-age in the next 4-6 years and I lose sleep over how I am going to afford my loans and send them to school.

Had I been counseled properly when I took out these loans, or by Navient when I reached out for help in the past, I would not be in the situation I am in now.

I realize discharging loans in bankruptcy is challenging but does the type of loan I have, FFEL, make it any easier, given they seem to preclude me from taking advantage of any relief. Any suggestions for navigating this mess?

Melissa

Answer:

Dear Melissa,

With FFEL student loans the CARES Act does not provide you with protection. See this post. FFEL, HEAL, and some Perkins loans are excluded.

It seems you are caught in an abandoned loan product. To be eligible for an Income-Driven Repayment Plan you would need to have your loans eligible for consolidation into a new Direct Loan and out of the FFEL loan. However, some specific FFEL loans are eligible for consolidation into a Direct Loan.

READ  This is One Way to Get FFEL Spousal Consolidation Loans Forgiven

Most federal student loans, including the following, are eligible for consolidation:

  • Subsidized Federal Stafford Loans
  • Unsubsidized and Nonsubsidized Federal Stafford Loans
  • PLUS loans from the Federal Family Education Loan (FFEL) Program
  • Supplemental Loans for Students
  • Federal Perkins Loans
  • Nursing Student Loans
  • Nurse Faculty Loans
  • Health Education Assistance Loans
  • Health Professions Student Loans
  • Loans for Disadvantaged Students
  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Direct PLUS Loans
  • FFEL Consolidation Loans and Direct Consolidation Loans (only under certain conditions)
  • Federal Insured Student Loans
  • Guaranteed Student Loans
  • National Direct Student Loans
  • National Defense Student Loans
  • Parent Loans for Undergraduate Students
  • Auxiliary Loans to Assist Students – Source

The underlying problem is that the Federal Family Education Loan (FFEL) is actually a hybrid product. The FFEL is actually a private student loan that was subsidized by the federal government. The program was terminated in 2010.

Because they are private loans, loans granted under the FFEL Program are not eligible for the Public Service Loan Forgiveness program.

So the key here is if your FFEL loans were actually previously consolidated into an FFEL Consolidation Loan. If so, let me know in the comments below. That would be the golden ticket to getting these into a government-backed Direct Loan with better options.

I completely sympathize with your concerns over sending your kids to college. Now might be the time to look at their path differently.

I am a huge fan of kids today attending community college for the first two years. Your local community college can give you advice about transfer credits and what schools they regularly work with. It is also the best value for college credits and the lowest cost or widely recognized education.

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After two years the kids can transfer to a school where their credits will be accepted and they should explore all options for scholarships and tuition reduction.

The modern evaluation to attend school should be based on a cost-benefit analysis. There are two primary considerations. The first is that any investment in higher education is not going to pay off unless the degree is obtained.

READ  Department of Ed FFEL Joint Consolidation Rules Arbitrary & Punitive

Second, an evaluation of future field income compared to the cost of education is important to conduct. The math can not make sense when the cost of a degree far exceeds the earning potential in the field.

There are no words I can offer that might eliminate your perceived guilt about your children heading to college. But keep in mind that since I went or you went the sands have shifted and you will need to abandon all assumptions and instead look at the financial reality of starting higher education today.

Don’t let your children stumble into a trap as you feel in when people told you FFEL loans were the way to go.

And for your loans, every day you accept a forbearance or deferment just puts you two days behind. The fastest way to eliminate FFEL loans is to pay them off by sending at least the minimum standard payment. Otherwise, you are correct, you will pay mountains of interest on these loans until your old age.


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About the author

Steve Rhode

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

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