When student loan repayment resumes in the fall of 2023, the rules on student loan consolidation and the loan forgiveness clock are going to be very different. The news is mostly positive for borrowers who avail of Public Service Loan Forgiveness (PSLF) and IDR Forgiveness.
It’s not the biggest change to student loans, but it’s important nonetheless.
Strangely, there is no simple new rule to explain. Instead, the progress of the discount you get credit for after consolidating your loans will partly depend on when you consolidate your loan.
The update of the number of IDR payments and the student loan forgiveness clock
The best time for consolidation will be before December 31, 2023.
The program is called the One-time adjustment of the number of IDR paymentsbut it does much more than its very specific name implies.
For our purposes today, a key detail is that borrowers who consolidate using Federal Direct Consolidation will not lose any progress toward IDR remission. Above all, they will not lose their progress towards the PSLF either.
In addition, borrowers also benefit from how the updated IDR payment tally grants credit. If you have a loan with 50 months of forgiveness progression and you combine it with another loan with 70 months of forgiveness credit, the consolidated loan will have 70 months of credit.
If you have FFEL or Perkins loans that need to be consolidated, be sure to do so before the December 31, 2023 deadline. The online application is available from the Ministry of Education.
Sherpa Tip: If you are interested in enrolling in the new SAVE plan to benefit from lower monthly payments, consolidation is a necessary step for borrowers with FFEL and Perkins loans.
What about the limited exemption? During the Covid-19 payment and interest pause, the limited waiver program allowed borrowers to consolidate without losing progress towards the PSLF.
This program is finished, but updating the IDR number helps borrowers achieve many of the same goals.
How does the December 31, 2023 deadline work?
Although the consolidation application only takes about 20 minutes to complete, the the consolidation process usually takes a month or two to complete.
Fortunately for borrowers, this deadline is quite flexible.
As long as you complete your application before the deadline, you can still benefit from the updated IDR count and generous conditions on forgiveness progress.
It is also possible that this deadline will be extended, as it has already been extended several times in the past. However, skipping that deadline in hopes of it being moved again would be a huge risk.
Forgiveness clock after SAVE goes online
When the SAVE plan has been createdit changed a number of federal student loan policies.
Among the changes, borrowers who consolidate their loans will not lose all of their progress toward loan forgiveness.
Notably, this change is part of the Phase II implementation of the plan, meaning the rule won’t be in place until July 1, 2024.
Also, the new permanent rule is not as generous as the one-time IDR count update provision. If a borrower has two loans with the same balance and one has 50 months for IDR cancellation and the other has 70, the new combined loan gets 60 months credit.
For those wishing to do the math on their own loans, the government uses the weighted average of progress.
A possible reset in early 2024?
In the past, consolidating your loans meant restarting progress toward loan forgiveness. It was a harsh rule which, fortunately, has been corrected.
However, at this stage, it is unclear what will happen with consolidated loans after the IDR number update deadline expires and before SAVE is fully implemented.
I expect either the IDR count update deadline will be pushed back to June 30, 2024, or the SAVE rules on forgiveness progression will be implemented a bit sooner.
However, at the time of this writing, it appears borrowers who consolidate their federal loans in the first half of 2024 risk losing all of their progress toward forgiveness. This discrepancy should be fixed, but if you miss the IDR count update deadline, you’ll want to check the status of this rule.
It is conceivable that waiting until July is the best decision for borrowers who need to consolidate their FFEL or Perkins loans.
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