The Biden administration has officially announced an extension for the one-time payment account adjustment for federal student loan borrowers.
Borrowers now have until June 30, 2024, to consolidate their federal student loans and take advantage of the generous rules for awarding pre-consolidation progress toward forgiveness. This extension is particularly crucial for Federal Family Education Loan Program (FFELP) borrowers.
Despite the deadline being extended multiple times, today’s announcement likely marks the final extension. The urgency stems from the impending implementation of the full version of the SAVE rules, set to take effect on July 1, 2024. Under these new rules, borrowers who consolidate will receive the weighted average amount of their existing loans’ progress prior to consolidation.
Key Rule Comparisons
Previous Rules:
- Before the Biden administration’s changes, consolidating federal student loans would reset a borrower’s progress toward forgiveness under both the Public Service Loan Forgiveness (PSLF) and Income-Driven Repayment (IDR) forgiveness programs.
Current Temporary Rules:
- The temporary rules count certain deferments, forbearances, and activity on balance-based plans that typically do not count toward forgiveness. This includes loans that were previously consolidated under the old rules.
- Borrowers receive maximum progress based on the included loans. For example, if a borrower has one loan with 10 years of progress and another with 6 years of progress, the consolidated loan will reflect the full 10 years of progress.
New SAVE Rules (Effective July 1, 2024):
- Borrowers will receive a weighted average of their progress. For instance, if a borrower has a $3,000 loan with 10 years of progress and a $1,000 loan with 6 years of progress, consolidating the two will result in a loan with 9 years of progress.
- Conversely, if a borrower has a $3,000 loan with 6 years of progress and a $1,000 loan with 10 years of progress, the consolidated loan will have 7 years of progress.
Why Consolidation Before June 30th is Crucial for FFELP Borrowers
For FFELP borrowers, consolidating before the June 30th deadline is almost essential. The temporary rules provide a unique opportunity to maximize progress toward forgiveness, which will no longer be available after the deadline.
A failure to consolidate means that prior payment activity on plans such as the standard repayment plan or the graduated-extended repayment plan will not count toward IDR or PSLF forgiveness.
Benefits Beyond FFELP
Even for borrowers without FFELP loans, consolidation is often still advisable, especially for those with loans showing varying amounts of progress toward forgiveness.
Even though borrowers with federal direct loans will recieve the adjustment automatically, there are still potential benefits to consolidating before the adjustment happens.
For example, borrowers who have returned to school after working for a few years and those with loans reflecting different stages of progress should strongly consider consolidation. The temporary rules maximize existing progress. By not consolidating, these borrowers will have loans with different forgiveness timelines.
Final Thoughts
With the final extension in place, impacted borrowers should act swiftly to consolidate their loans before the June 30th deadline.
The benefits of the current temporary rules provide an unprecedented opportunity to maximize progress toward loan forgiveness. As the new SAVE rules take effect on July 1, 2024, this likely represents the final opportunity to take advantage of these generous rules.
If you have questions about how this deadline impacts you, consider calling your loan servicer, reading about the full terms of the adjustment at studentaid.gov or scheduling an consultation to discuss how to maximize the benefit of the adjustment as part of your broader repayment strategy.
