Student loan forgiveness consolidation deadline is days away

Borrowers hoping for student loan forgiveness have just days to act before the April 30 deadline.

Those who apply for so-called loan consolidation before the end of this month — which will consolidate their federal student loans into one new loan — could get their debt canceled sooner than they otherwise would have. Some could even see their debt canceled immediately.

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 the standard repayment plan and may be zero in some cases. Depending on the plan, borrowers typically get forgiveness on any remaining debt after 10, 20, or 25 years.

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

“On average, they get at least one new loan every year in school,” Kantrowitz said.

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

As a result, a borrower is often several different deadlines before being forgiven, one for each of these loans.

For 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.

Consolidating before May 1 could land them for immediate forgiveness of 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.

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 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, it may be a good idea to get a complete payment history for each loan, so you can ensure later that you’re getting the full credit you’re entitled to, experts said.

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.

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.

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