Editor’s note: The April 30, 2024 student loan consolidation deadline to maximize your debt relief has passed. You can still consolidate your federal student loans and may still be eligible for student loan forgiveness. Learn about next steps for student debt relief.
Key takeaways
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- You have until April 30 to consolidate your federal student loans in order to maximize your debt relief under the Biden administration’s latest student loan forgiveness plan.
- All federal loans are eligible for consolidation, including Perkins Loans, Parent Plus loans and Federal Family Education Loan Program loans. Private loans are not eligible.
- Most borrowers will benefit from this move, but if you’re not eligible for forgiveness, you may not benefit from loan consolidation.
Last month, the White House unveiled a new student debt relief plan aimed to cancel debt and wipe out runaway interest for millions of borrowers. But time’s running out to maximize your debt relief.
If you have any federal student loans, you have until midnight on April 30 to consolidate your loans into one new federal loan. Consolidating can help convert FFELP, Perkins and other non-Direct Loans into Direct Loans, which offer more debt relief benefits. And it can also streamline multiple loans with different payoff timelines into one monthly payment with one due date.
Even if you already have Direct Loans, if you have more than one, you might benefit from consolidating, said Mark Kantrowitz, a financial aid expert and CNET Expert Review Board member.
When you consolidate your loans, you’re able to select an income-driven repayment plan option. If you’ve been making payments for 20-25 years, depending on the IDR you select, your entire balance could be forgiven.
But you’ll need to move fast. Here’s how to decide if loan consolidation is right for you, why it could maximize your debt relief and how to consolidate your loans online.
Read more: Will Biden’s New Student Loan Forgiveness Plan Cancel My Debt?
What is student loan consolidation?
Student loan debt consolidation is kind of like refinancing -- it lets you combine your existing loans into a new loan with a fixed interest rate. The federal loan consolidation application lets you consolidate any federal loans into a new Direct Consolidation Loan, which may then make you eligible for income-driven repayment and forgiveness programs like SAVE that you may have been previously excluded from.
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.
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.
Will consolidating my student loans raise my interest rate?
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.
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 April 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 April 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.
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