Should you consolidate to get student loan forgiveness? It is complicated

Borrowers are currently navigating a complex web of new temporary student loan forgiveness initiatives launched by the Biden administration in recent months. Each of these loan forgiveness programs has unique eligibility rules and application procedures. In some cases, borrowers may have to consolidate their student loans through a federal direct consolidation program to qualify. But not always.

Here is a breakdown.

The Role of Loan Consolidation in Student Loan Forgiveness Initiatives


Until 2010, there were two parallel federal student loan programs:

  • Direct loanswhich are federal student loans issued and held by the government (the US Department of Education).
  • FFELP loans, which stands for the Federal Family Education Loans Program. FFELP loans are an older federal loan program in which loans were issued and held by private and commercial lenders, but could then be assigned or transferred to the US Department of Education in some cases. The FFEL program was stopped in 2010, but many FFELP loans are still outstanding.

Borrowers can, in many cases, consolidate existing federal student loans (including direct loans and FFELP loans) into a new direct federal consolidation loan. This can sometimes have benefits, such as simplifying the management of repayments and loans, and opening up new repayment and discount options. For loan forgiveness programs that are limited to certain types of loans, such as direct loans or federal government-held loans, direct loan consolidation can effectively convert ineligible loans into an eligible loan.

However, direct loan consolidation can also have some disadvantages. Consolidation may result in the capitalization of accrued interest. And while consolidation generally results in a weighted average interest rate based on the rates of the underlying loans that are consolidated, borrowers may lose incentive-based interest rate reductions by consolidating.


Historically, direct loan consolidation would erase past progress toward student loan forgiveness under several key federal programs, such as civil service loan forgiveness and income-contingent repayment. But under temporary Biden administration initiatives, that may not be the case, at least as long as applicable temporary relief programs remain active. And in some cases, direct loan consolidation is the only way to receive relief under these initiatives.

Here’s how direct loan consolidation fits into three key federal student loan forgiveness initiatives.

FFELP Loan Consolidation for Biden’s One-Time Student Loan Forgiveness Plan

Under President Biden’s recently announced one-time student loan forgiveness plan, millions of federal student loan borrowers may be eligible for $10,000 or more in federal student loan forgiveness. Eligible borrowers must have earned less than $125,000 (or less than $250,000 if married) in 2020 or 2021 to qualify for loan forgiveness.


The Ministry of Education has indicated that federal student loans held by the government will be eligible for this student loan forgiveness initiative. “Government-held” federal student loans include all direct loans, as well as some FFELP loans owned or administered by the US Department of Education. Defaulted FFELP loans will also be eligible for relief under this initiative, whether they are held by the Ministry of Education or by a private or state-affiliated guarantee agency.

But FFELP loans in good standing and held by businesses are not eligible for this relief. The Department of Education initially indicated that these borrowers could consolidate FFELP loans into a federal direct consolidation loan to become eligible. However, in response to new litigation aimed at blocking the program, the Biden administration reversed course and, effective September 29, 2022, borrowers with FFELP commercial loans cannot receive student loan forgiveness through direct consolidation of loans.

However, according to Ministry of Education guidelines, “borrowers with FFEL program loans…not held by [the Education Department] who applied to be consolidated into the direct loan program before September 29, 2022 are eligible” for this loan forgiveness program.


Consolidation for Student Loan Forgiveness under the PSLF Waiver

Last year, the Biden administration launched the Limited PSLF Waiver — a temporary program that can provide sweeping retroactive flexibilities to borrowers applying for student loan forgiveness through the Public Service Loan Forgiveness Program (PSLF ). Under the PSLF’s limited exemption, prior repayment periods and certain prior deferment and forbearance periods may count toward the 120 “eligible payments” a borrower must make to qualify for forgiveness. loan under the program (there are conditions of employment that must be met, as well). The limited PSLF waiver is, however, set to end on October 31 – which is just a few weeks away.

Only direct federal student loans are eligible for the limited PSLF waiver. FFELP loans (whether corporate or government owned) do not qualify unless these loans are consolidated into a federal direct consolidation loan. Under the original PSLF rules, prior payments on FFELP loans prior to direct loan consolidation would not be considered. But under the limited PSLF waiver, they can.

Borrowers with FFELP loans who are eligible for relief under the limited PSLF waiver must “consolidate your FFEL program loans…into one Direct Consolidation Loan before October 31, 2022. You cannot receive credit for repayment time if you do not consolidate and submit your PSLF [employment certification] form on that date,” says the Department of Education.


Even direct federal student loan borrowers could benefit from direct loan consolidation under the limited PSLF waiver, at least in some cases. In the past, consolidating direct loans that already had PSLF credit would cause past PSLF credit to be erased, thus restarting the clock. But under the limited PSLF waiver, the Department of Education says that for borrowers who have individual direct loans with different repayment histories and, therefore, different PSLF payment tallies, “Under changes in time-limited PSLF rules, your consolidation loan will receive credit for the time in repayment on your loans with different counts.Your consolidation loan will be credited with at least the greatest number of payments on the loans that have been consolidated .

Although the consolidation process may take a month or two, the Department of Education states that “your application for consolidation must be submitted online through before 11:59 p.m. Eastern Time on October 31, 2022, so that you can qualify for the limited PSLF waiver,” regardless of the processing time on the Department of Education side. Borrowers must also complete and submit the required PSLF employment certification forms by the deadline.

Consolidation for Student Loan Forgiveness as part of IDR Account Adjustment

Earlier this year, the Biden administration announced the IDR Account Adjustment Initiative, which—similar to the limited PSLF waiver—can provide extended retroactive credit for certain repayment, deferment, and payment periods. forbearance that can be applied to a borrower’s 20 or 25 years. loan forgiveness period under income-contingent repayment (IDR) plans.


According to the Ministry of Education, “Any borrower whose loans have accumulated a repayment term of at least 20 or 25 years will qualify for automatic forgiveness, even if you are not currently on an IDR plan.” Other borrowers may receive substantial credit that can accelerate their progress toward eventual debt forgiveness.

All federal student loans held by the government will automatically be eligible for the IDR account adjustment. This includes all direct federal student loans, as well as FFELP loans held by the Department of Education.

FFELP loans held by businesses may qualify for the IDR account adjustment if they are consolidated into a federal direct consolidation loan, the Department of Education says. “If you have FFEL loans held for business purposes, you can only benefit from the IDR account adjustment if you consolidate before we finish implementing these changes,” the administration explains in published guidelines. Current guidance says the Department of Education expects implementation to begin this fall and be completed “at the earliest” January 1, 2023; however, officials have indicated that this initiative will likely be delayed and implementation will be pushed back further into 2023, possibly until the summer.


The Ministry of Education has released minimum guidelines on adjusting the IDR account, although further updates are expected in the coming months.

Resources for Borrowers Considering Consolidation to Access Student Loan Forgiveness Programs

If considering a direct loan consolidation to access or maximize potential loan forgiveness, borrowers should first consult important resources from the Department of Education:

Further Reading on Student Loan Forgiveness

Biden administration releases draft student loan forgiveness application — here’s what’s in it


Biden administration reveals potential start date for student loan forgiveness, but there’s a catch

5 key takeaways from the sudden change in student loan forgiveness eligibility

Biden’s student loan forgiveness could be taxable in some states


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