Borrowers must act by April 30 to qualify for student loan forgiveness

Many borrowers have the option to cancel their student loans, but they will need to act before April 30 to qualify, according to the Consumer Financial Protection Bureau.

The U.S. Department of Education is making a one-time adjustment to borrowers’ payments this summer, and those who request consolidation by the end of the month — which will leave them with a larger loan — could see their debt canceled immediately or sooner early. than they would have done otherwise.

“The one-time adjustment is designed to take into account a larger portion of the payments you have made, so that they can be added to the payments required for cancellation,” the CFPB explains.

Here’s what you need to know.

Income-driven repayment plans, which date to 1994, set borrowers’ monthly payments based on a portion of their discretionary income. These payments are generally lower than standard reimbursement and may be zero in some plans.

Borrowers typically get forgiveness on any remaining debt after 10, 20, or 25 years, depending on the plan.

One complicating factor for borrowers in these programs is that they often have multiple loans, taken out at different times, said Mark Kantrowitz, a higher education expert.

“They get on average at least one new loan every year in school,” he said.

This may mean that a borrower has multiple forgiveness deadlines, one for each of these loans.

Learn more about personal finance:
Top Colleges Expand Financial Aid to Eliminate Student Loans
What you need to know about Social Security’s new overpayment policies
What Car Buyers Need to Know

Now, the Biden administration is temporarily offering borrowers the option to consolidate their loans and get credit going back to their first payment on the oldest of their original loans in that batch.

This 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. Consolidation could land them for immediate forgiveness on all those loans, experts say, although they would normally have to wait at least another 14 years to get full relief.

Usually, a student loan consolidation restarts a borrower’s forgiveness timeline, making it a terrible decision for those working toward forgiveness. But the Biden administration has changed the details of this program until April 30.

All federal student loans are eligible for consolidation, including Federal Family Education Loans, Parent Plus Loans and Perkins Loans, Kantrowitz said.

You can apply for a Direct Consolidation Loan at StudentAid.gov or through your loan servicer.

“As long as the application is submitted before 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, it may be a good idea to get a complete payment history for each loan, so you can later ensure you’re getting the full credit you’re entitled to, said Elaine Rubin, director of corporate communications at Edvisors, which helps students manage college costs and loans.

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.

Payment history counts when your loans first went into repayment, not when the loan was borrowed, Rubin said.

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, a she added.

You should never have to pay a fee to consolidate your loan, says the CFPB. They are mostly scammers who try to trick you into doing this.