Key takeaways
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- Consolidating federal student loans that aren’t currently eligible for forgiveness programs could help you qualify for debt relief.
- You must apply to consolidate by end of day on June 30 to be eligible for this one-time benefit.
- You can consolidate your loans online. The process takes about 30 minutes.
If you have federal student loans that aren’t eligible for debt relief programs, today’s your last chance at increasing your forgiveness amount.
The Department of Education is reviewing past student loan payment counts as part of a one-time adjustment. This adjustment could increase your payment counts to make you eligible for forgiveness sooner under a qualifying income-based repayment plan or another program, like Public Service Loan Forgiveness. Consolidating before June 30 can help apply these benefits to federal loans that were previously ineligible for student forgiveness programs.
There’s a lot of confusion around student loans in the news right now. With parts of the Biden administration’s SAVE repayment plan on hold, you may be wondering if it’s still worth consolidating your student loans.
Experts say yes.
“The consolidation deadline for the one-time IDR adjustment is not impacted by the court decision,” said Elaine Rubin, a higher education finance and policy expert and director of corporate communications for Edvisors. “The US Department of Education will still be counting eligible payments to qualify borrowers.”
Although consolidation will benefit most borrowers, it’s not the right move for everyone. Here’s how to know if this one-time consolidation option could maximize your debt relief and if you should consider it.
Read more: If You Defaulted on Your Student Loans, You May Qualify for This Debt Relief Program
What is student loan consolidation?
Student loan debt consolidation is similar to refinancing — it lets you combine your existing federal student loans into a new loan with a fixed interest rate.
Why would you want to do this? If you hold FFELP, Perkins and other nondirect federal student loans, they may not be eligible for forgiveness programs. By consolidating them into a new Direct Loan and enrolling in an income-driven repayment plan, you may be eligible for automatic loan cancellation, interest forgiveness or other debt relief benefits.
“Consolidation increases the number of payments that count toward forgiveness and synchronizes your forgiveness date.”
If you qualify for an IDR plan and have been making payments for 20-25 years, your entire balance could be forgiven automatically.
And there are other benefits to loan consolidation. Having one student loan to keep track of, rather than many, can also make it easier to manage payments. Depending on the payment plan you choose, a consolidation loan could lower your monthly payments but also extend your repayment period. But if you’re eligible for forgiveness after consolidating, this might not be much of a concern.
Even if you already have Direct Loans, you might benefit from consolidating if you have more than one with different repayment start dates, said Mark Kantrowitz, a financial aid expert and member of CNET Money’s Expert Review Board.
Private student loan companies also offer debt consolidation for student loans. Even if these programs offer lower interest rates or other perks, converting your federal student loan into a private loan rarely makes sense. Private student loans are not eligible for federal income-driven repayment programs or federal debt relief.
Read more: Did You Default on Your Student Loans? You May Qualify for This Debt Relief Program
Will my interest rate go up if I consolidate my student loans?
If you currently have low interest rates on your federal student loans, you won’t have to worry about your new consolidated rate spiking — in most cases.
Your new Direct Consolidation Loan’s interest rate will be based on a weighted average of the loans you consolidate and it will be rounded up to the next 1/8th of 1%, according to Federal Student Aid, the Department of Education’s official student loan website.
There’s one exception, though. If you have a FFELP loan, you might lose some benefits when consolidating. “The main issue is borrowers who have a big interest rate reduction from the FFELP lender,” said Kantrowitz. “These discounts are provided by the lender and will disappear if you consolidate the loans.”
You don’t have to consolidate all of your loans, so you might exclude your FFELP loans if you want to keep your current discount. You’ll need to weigh whether you qualify for forgiveness and how consolidating might affect your monthly student loan payment to decide if consolidating is right for you.
If you have unpaid interest on a student loan, it will be capitalized when you consolidate the loan and could increase your principal balance. Factor that in when deciding how much your new monthly payment would be and how much you may qualify for in forgiveness.
I don’t know if I’m eligible for student loan forgiveness. Should I still consolidate my loans?
For many borrowers, consolidating your federal student loans will help lower your monthly payment and could maximize your potential debt relief. If you currently hold federal student loans that are not Direct Loans, it can be particularly beneficial. Consolidating can also help you lock in a fixed interest rate if any of your federal student loans have a variable rate.
The latest student loan forgiveness program takes into account the date of your first student loan payment. Consolidating your loans helps ensure you get credit for your new Direct Loan starting with your earlier loan payment date.
So, let’s say you graduated from college and made your first federal student loan payment in 2004. Later, you went back to school for a second degree and started paying those loans in 2010. Under an income-driven repayment plan with a 20-year path to forgiveness, you might be eligible to have your loans from 2004 forgiven this year. But by consolidating your more recent loans with your older ones into one new Direct Loan, your entire balance could be wiped out this year.
Even if you graduated more recently, consolidating your federal loans and enrolling in an IDR can help you get access to forgiveness sooner. And if you only have one student loan, if it’s not a Direct Loan, you may also benefit from consolidating.
But if you don’t qualify for debt relief, it may not make sense to go through this step. “If you are not currently pursuing any kind of forgiveness (e.g., not even IDR forgiveness) and expect to never pursue forgiveness, then you don’t need to do it, ” said Kantrowitz.
Will the June 30 deadline be extended?
Although the Department of Education extended the loan consolidation deadline from April 30 to June 30 this spring, experts don’t anticipate it will be pushed back again.
“The extension for consolidation has not changed, and it’s not anticipated it will change or be extended any further,” said Rubin. If you can benefit from consolidation your loans, you’ll want to apply soon.
How to consolidate your student loans
You can consolidate your federal student loans online at StudentAid.gov. You’ll need to submit your application before midnight local time on June 30 to meet the deadline. You can consolidate after this date, but would miss out on some benefits.
To fill out the application, you’ll need your Federal Student Aid ID, some personal information, financial information and loan information to fill out the application. The FSA website says it takes approximately 30 minutes to complete the application for consolidating your loans.
You can fill out the application now at studentaid.gov/loan-consolidation.
Once you apply, it can take up to 60 days to process your consolidation, said Kantrowitz. In the meantime, you might see your student loan payment count drop to zero. Don’t panic if this happens. It just means your adjustment count is being worked on.
What happens if you miss the deadline?
If you consolidate your loans after the June 30 deadline, you can still get credit for past payments made on direct loans. But you might not get as much credit. Instead, your payment count would be based on a weighted average or may reset to zero. But, you could still gain access to a debt relief program.
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