Some federal borrowers who have repaid their student loans for at least a decade may be eligible for remaining balance forgiveness, but they need to act soon.
To correct what it calls “unnecessary hurdles and administrative inaccuracies,” the Department of Education conducted a one-time payment count adjustment to give borrowers credit for all the time they spent repaying, including qualifying deferral or forbearance periods such as three and a half year pause in payments due to the pandemic.
Having an accurate payment history is critical to receiving forgiveness through Public Service Loan Forgiveness and income-driven repayment plans like President Joe Biden’s new SAVE program, which provides forgiveness after making 10 or more years of payments .
Before this one-time account adjustment and the introduction of SAVE, receiving loan forgiveness through income-driven repayment plans was rare: fewer than 50 borrowers successfully obtained loan forgiveness through them.
By readjusting payment history, the Biden administration has already canceled the student debt of about 2 million borrowers, and many more could qualify once they consolidate their loans and update their payment history.
Who needs to consolidate for one-time payment adjustment?
For many borrowers who have already received forgiveness through account adjustment, the process was automatic. However, some borrowers with older student loans need to consolidate them to adjust their payment history.
Specifically, student loan borrowers with Federal Direct Loans need not take action. But borrowers with the following types of loans typically need to consolidate:
- Federal Private Family Education Loans (FFELs)
- Perkins Loans
- Health Education Assistance Loans (HEAL)
- Some Parent PLUS loans
Parent PLUS loans administered by the Department of Education will automatically be canceled if the loan has 25 years (or 300 months) of qualifying payments through one-time adjustment without the need for consolidation.
However, for Parent PLUS loans with a payment history of less than 25 years, the department recommends consolidating them by April 30, so they may be eligible for forgiveness later through its income-driven repayment plan (or the program for public service workers, if applicable) once you meet your qualifications.
If you are unsure what type of loan you have, you can check by logging into your account at studentaid.gov. In the “My Help” section, click View Details and you will find the loan types listed. To see if your loans are privately held (and therefore need to be consolidated), look for the line that lists who the loans are serviced by. If you see the name of a bank, company, or college instead of “Dept. of Ed,” the loans are privately held.
What to know about federal loan consolidation
By consolidating the above types of loans, they are merged and become a new direct consolidation loan with a single monthly bill.
The loan gets a new fixed interest rate based on a weighted average of consolidated loans. And since the consolidated loan is a direct loan, it has the advantages that this brings, namely the repayment and forgiveness options mentioned above.
(Note that consolidation is completely separate from refinancing. Refinancing is done through private companies and turns the loans into private loans, which are not eligible for all federal benefits.)
In the past, federal loan consolidation effectively erased payment history, which meant the clock started over again for borrowers who wanted to receive forgiveness through various federal repayment programs.
Now and through April 30, loan consolidation actually preserves your payment history. In fact, the federal loan with the longest payment history will generally be transferred to the consolidated loan, regardless of the payment history of your other loans, putting you on a faster path to forgiveness for all loans combined.
Consolidation, however, is not meant for everyone.
Consolidating loans may result in a longer repayment period than your original loans depending on the payment plan you select. Some people do this intentionally to reduce the monthly payment by extending the term of the loan, but this ends up costing you more in the long run.
Likewise, when loans are consolidated, any remaining interest from the old loans is incorporated into the new consolidated loan balance. This may result in more interest accruing on a larger principal balance.
You need to consolidate by April 30 only if you have loans that would benefit from a payment history recount.
Applying for loan consolidation on the Department of Education website is always free and only takes about 30 minutes. Paper applications are available in the FAQ section and will need to be sent as a package directly to your preferred loan servicer, not to the Department of Education.
Loan servicers process consolidation requests and may take up to six weeks to complete. But if you submit your paperwork by April 30, you’ll meet the payment recount deadline.
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