Some student loan borrowers have until the end of Tuesday to take advantage of the opportunity to get their debt canceled sooner than they otherwise would have.
Borrowers with multiple student loans who request a so-called loan consolidation before the end of the day on April 30 – a move that will consolidate their federal student loans into one new loan – could benefit from the Biden administration’s temporary policy .
Applying for consolidation is a simple process: It should take less than 15 minutes to fill out the forms, said Jane Fox, president of the union chapter of the Legal Aid Society.
Here’s what borrowers need to know before the deadline.
Consolidating Your Loans Could Bring You Closer to Relief
Many former students have taken out multiple student loans, either because they borrowed repeatedly throughout their studies or because they returned to school at some point. If these borrowers are enrolled in an income-driven repayment plan, this may mean that they are also several different time frames before they are forgiven. (Depending on the plan, borrowers can get forgiveness on any remaining debt after 10, 20, or 25 years.)
Under the temporary policy, borrowers who consolidate will get payment credit on all of their loans based on the schedule of whichever one they repay the longest.
“This will ensure people get the maximum number of months of credit for student debt cancellation,” Fox said.
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Consolidating while this policy is in place could be a good deal for many, experts say.
For example, let’s say a borrower graduated from college in 2004, took out more loans to get a graduate degree in 2018, and is now repaying under an income-driven plan with a surrender period of 20 years.
Experts say consolidating before May 1 could lead them to quickly receive forgiveness on all those loans, although they would normally have to wait at least 14 more years to get full relief.
“Many borrowers will benefit from complete debt forgiveness, especially those who have been paying for more than twenty years,” Fox said.
Usually, a student loan consolidation resets a borrower’s deadline for forgiveness, making it a terrible decision for those working toward forgiveness.
What you need to know about consolidating your student loans
All federal student loans — including Federal Family Education Loans, Parent Plus Loans and Perkins Loans — are eligible for consolidation, said higher education expert Mark Kantrowitz, in a previous interview with CNBC.
You can apply for a Direct Consolidation Loan at StudentAid.gov or through your loan servicer.
“As long as the application is submitted by April 30, everything should be fine, even if it takes longer for services to process it,” Kantrowitz said.
Some borrowers who took out small amounts may even be eligible for forgiveness after just 10 years of payments, if they enroll in the new income-driven repayment option, known as the SAVE plan.
Consolidating your loans shouldn’t increase your monthly payment, since your bill under an income-driven repayment plan is based on your income, not your total debt, Kantrowitz said.
The new interest rate will be a weighted average of your loan rates.
Before consolidating, try to obtain a complete payment history for each loan. By doing so, experts say, you can ensure you get the full credit you’re entitled to.
You should be able to get a history of your payments on StudentAid.gov by reviewing your loan details. You can also ask your repairer for a complete file.
If a borrower thinks there is a problem with their payment tally, they can talk to their loan servicer or file a complaint with the Department of Education’s Federal Student Aid Unit.
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