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Borrowers hoping for student loan forgiveness have just a few more days to act before an April 30 deadline.
Those who request a so-called loan consolidation before the end of this month — which will combine their federal student loans into one new loan — could get their debt canceled sooner than they would have otherwise. Some could even see their debt canceled immediately.
Here’s what you should know.
Consolidation can get you closer to loan forgiveness
Income-driven repayment plans, which date to 1994, set borrowers’ monthly payments based on a share of their discretionary income. Those payments are typically lower than under the standard repayment plan, and can be zero in some cases. Depending on the plan, borrowers typically get any remaining debt forgiven 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, said higher education expert Mark Kantrowitz in an earlier interview with CNBC.
“They get at least one new loan each year in school, on average,” Kantrowitz said.
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As a result, often a borrower is on multiple different timelines to forgiveness, one for each of those loans.
For now, the Biden administration is temporarily offering borrowers the chance to combine their loans and to get credit going back as far as their first loan payment on the oldest of their original loans in that bundle.
This could be a good deal for many, experts say.
For example, say a borrower graduated from college in 2004, took out more loans for a graduate degree in 2018 and is now in repayment under an income-driven plan with a 20-year timeline to forgiveness.
Consolidating before May 1 could lead them to immediately qualify for forgiveness on all of those loans, experts say, even though they’d normally need to wait at least another 14 years for full relief.
Usually, a student loan consolidation restarts a borrowers’ forgiveness timeline, making it a terrible move for those working toward cancellation.
What to know about consolidating your student loans
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 with your loan servicer.
“So long as the application is submitted by April 30, they should be fine, even if the servicers take longer to process it,” Kantrowitz said.
Some borrowers who took out small amounts may even be eligible for cancellation after as few as 10 years’ worth 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 earnings and not your total debt, Kantrowitz said.
The new interest rate will be a weighted average of the rates across your loans.
Before consolidating, it may be a good idea to get a complete payment history of each loan, so that you can later make sure you’re getting the full credit you’re entitled to, experts said.
You should be able to get a history of your payments at StudentAid.gov by looking into your loan details. You can also ask your servicer for a complete record. The payment history counts when your loans first entered repayment, not when the loan was borrowed.
If a borrower believes there is an issue with their payment count, they can talk to their loan servicer or submit 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. It is mostly scammers that would try to get you to do so.