When student loan repayment resumes in the fall of 2023, the rules on student loan consolidation and the loan forgiveness clock are going to look a lot different. The news is mostly positive for borrowers purusing Public Service Loan Forgivness (PSLF) and IDR forgiveness.
It isn’t the biggest change coming to student loans, but it’s significant nonetheless.
Weirdly, there isn’t a simple new rule to explain. Instead, how much forgiveness progress you get credit for after consolidating your loans will depend in part upon when you consolidate your loan.
The IDR Payment Count Update and the Student Loan Forgiveness Clock
The best time for consolidation will be before December 31, 2023.
The program is called the One-Time IDR Payment Count Adjustment, but it does far more than the very specific name implies.
For our purposes today, one key detail is that borrowers who consolidate using federal direct consolidation won’t lose any progress toward IDR forgiveness. Crucially, they also won’t lose progress towards PSLF either.
Additionally, borrowers also benefit from how the IDR payment count update awards credit. If you have one loan with 50 months worth of forgiveness progress and you combine it with another loan with 70 months of forgiveness credit, the consolidated loan will have 70 months worth of credit.
If you have FFEL or Perkins loans that need to be consolidated, be sure to get it done by the December 31, 2023, deadline. The online application is available through the Department of Education.
Sherpa Tip: If you are interested in enrolling in the new SAVE plan to beneift from lower monthly payments, consolidation is a necessary step for borrowers with FFEL and Perkins loans.
What about the limited waiver? During the Covid-19 payment and interest pause, the limited waiver program allowed borrowers to consolidate without losing progress toward PSLF.
That program has ended, but the IDR Count update helps borrowers accomplish many of the same goals.
How does the December 31, 2023 deadline work?
Even though the consolidation application only takes about 20 minutes to complete, the consolidation process usually takes a month or two to finalize.
Fortunately for borrowers, this deadline is pretty flexible.
As long as you complete your application by the deadline, you can still benefit from the IDR Count Update and the generous terms on forgiveness progress.
It’s also possible that this deadline might get extended, as it has already been extended a couple of times in the past. However, skipping this deadline in the hopes that it gets moved again would be a huge risk.
The Forgiveness Clock After SAVE Goes Live
When the SAVE plan was created, it tweaked a number of federal student loan policies.
Among the changes, borrowers who consolidate their loans won’t lose all of their progress toward loan forgiveness.
Notably, this change is part of the phase II implementation of the plan, meaning the rule won’t be in place until July 1, 2024.
Additionally, the new permanent rule is not as generous as the One-Time IDR Count Update provision. If a borrower has two loans with the same balance and one has 50 months toward IDR forgiveness, and the other has 70, the new combined loan gets credit for 60 months.
For those that wish to do the math on their own loans, the government uses the weighted average of progress.
A Possible Reset in Early 2024?
In the past, consolidating your loans meant restarting progress toward loan forgiveness. It was a harsh rule that, thankfully, has been fixed.
However, at this point, it isn’t clear what will happen with loans consolidated after the IDR Count Update deadline passes and before SAVE is fully implemented.
I’d expect that either the IDR Count Update deadline gets pushed back until June 30, 2024, or the SAVE rules on forgiveness progress get implemented a little earlier.
However, as of this writing, it appears that borrowers who consolidate their federal loans in the first half of 2024 may lose all of their progress toward forgiveness. This gap should get fixed, but if you miss the IDR Count update deadline, you will want to check on the status of this rule.
It’s conceivable that waiting until July might be the best move for borrowers who need to consolidate their FFEL or Perkins loans.
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