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Federal Consolidation and the Student Loan Forgiveness Clock

If you are counting down the months until student loan forgiveness, consolidation has a huge influence on the clock.

Written By: Michael P. Lux, Esq.

Last Updated:

Federal Consolidation and the Student Loan Forgiveness Clock

If you are counting down the months until student loan forgiveness, consolidation has a huge influence on the clock.

Written By: Michael P. Lux, Esq.

Last Updated:

When you consolidate your federal student loans with the federal government, your old loans cease to exist.

Instead, you have a brand new consolidated loan. For people who are seeking student loan forgiveness, being smart about consolidation is critical. In some cases, not consolidating would be a huge mistake. In other cases, consolidating could result in years of extra payments and thousands of dollars lost.

Often the decision comes down to the student loan forgiveness clock. Sometimes consolidation resets the clock, others get it started for the first time.

Today we will be discussing instances where consolidating is the smart move, and when it is a dumb move. We will also discuss how to decide where your particular situation falls.

The Smart Federal Student Loan Consolidation

Some student loans are not eligible for student loan forgiveness. The classic example would be FFEL program loans that many students borrowed as Graduate Plus loans prior to 2007. Many of these loans are not eligible for the Public Service Student Loan Forgiveness program. The interesting wrinkle is that they are eligible to go into a federal direct consolidation loan, and that loan is eligible for public service forgiveness. If most of your debt falls into this category, getting it consolidated would be a smart move. Once the loans are consolidated, you can start making payments on the new loan and your forgiveness clock starts.

Put another way, consolidation is a vehicle to turn some federal loans that are not eligible for PSLF into an eligible loan.

Another reason that people consolidate their federal student loans is to reduce the number of companies they have to deal with. If you are dealing with 3 or 4 different federal loan servicers, consolidating your loans into one could streamline monthly payments. While this does have advantages, it is critical to make sure that you don’t consolidate for less paperwork and end up with a dumb consolidation.

The Dumb Consolidation

As a general rule, when you consolidate, the forgiveness clock reverts back to zero.

Consolidation can improve your repayment plan and certain program eligibility, but it can also eliminate progress. Starting from scratch is not always the best approach.

Don’t Make Assumptions

There are tons of different federal loans out there will lots of different rules at play. This is a huge decision that requires lots of double-checking to make sure you do it right. Conversations with your student loan servicer are an essential step.

That being said, it is also very important that you fact-check everything you are told.

It is easy to misunderstand something, and many servicers have been known to make mistakes about what they tell you. These companies have huge call centers, so if you get someone who doesn’t seem very knowledgeable, call back and hope you get someone better the next time.

Loan servicers are often hesitant to communicate in writing, but to the extent you can, having an email chain to prove what you were told is a good idea.

Deciding for yourself

Figuring out what is the best route can be tricky. With most people on PAYE, REPAYE, or IBR payment plans, and income changing over the years, it is hard to project exactly how much each option will cost.

Even though it is a challenge, give it a try anyway. Make a spreadsheet tracking what your income and your payments will be and then compare the consolidation versus the not consolidating route. You may be surprised to learn that sometimes chasing student loan forgiveness is the more expensive route.

To find your best route, research, talk to your servicer and then do the math.  Unfortunately, there are no simple answers or shortcuts.

Next Steps

About the Author

Student loan expert Michael Lux is a licensed attorney and the founder of The Student Loan Sherpa. He has helped borrowers navigate life with student debt since 2013.

Insight from Michael has been featured in US News & World Report, Forbes, The Wall Street Journal, and numerous other online and print publications.

Michael is available for speaking engagements and to respond to press inquiries.

5 thoughts on “Federal Consolidation and the Student Loan Forgiveness Clock”

  1. What are the situations where consolidation doesn’t restart the clock? You had mentioned that starting the clock over was “a general rule?
    Thanks.

    Reply
    • Hi Toby – I’m not aware of any exceptions to the general rule. That phrasing had more to do with the fact that I know of many borrowers who consolidated and then had to restart the path towards forgiveness. I’d like to see the Department of Education policy change on this particular rule. The fix could look something like Temporary Expanded Public Service Loan Forgiveness, where borrowers who were on the wrong repayment plan were able to count that time towards forgiveness.

      Reply
    • They track it by the month, so the goal is tallying 120 months.

      Once you start working for a PSLF employer, it is best to send in an employer certification form to make sure everything is in order. That is the best way to verify that the clock has started.

      Reply

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