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Should You Consolidate Student Loans for Forgiveness?

If you’re having trouble keeping track of all of your debt, consolidating federal student loans can help you keep track of everything and, in some situations, qualify you for Public Service Loan Forgiveness (PSLF).

However, before you decide to consolidate your loans under PSLF, make sure you are aware of all the potential disadvantages.

How Does Public Service Loan Forgiveness Work?

PSLF may be available to you if you have federal student loans and work in the public sector.

Borrowers who work for an authorized nonprofit or government agency can have their loans erased after making 120 qualifying payments, or 12 monthly payments for ten years, through this program.

PSLF is only available for federal loans, not for private ones. You must work full-time to be eligible for loan forgiveness.

To guarantee that the job you’re doing qualifies you for public service loan forgiveness, fill out the Public Service Loan Forgiveness Certification Form.

You must also have federal direct loans and be repaying them through an income-driven repayment plan (IDR).

PSLF might save you a lot of money depending on your earnings and loan balance.

Is It Necessary to Consolidate Your Student Loans For PSLF?

Consolidating your PSLF loans is only required if it allows you to use an income-driven repayment plan for your federal loans. This has been true for federal family education loans as well as Perkins loans.

While consolidation of loans is not required for PSLF, it may be beneficial.

Your federal student loans are consolidated into one with a federal direct consolidation loan.

There will be just one interest rate, one loan servicer, and one monthly payment. After all, juggling multiple loans and due dates can be exhausting.

The weighted average of your previous loan rates, rounded up, becomes your interest rate when you consolidate.

More: Repair Credit After Student Loan Default

Why PSLF Consolidation Could Be a Bad Idea

Consolidating your student loans into one may seem convincing, but if you’ve already paid qualifying payments toward PSLF before consolidation, you’ll lose credit for those payments if you consolidate your loans.

For example, if you paid on your federal student loans for 5 years before consolidating them, those payments will be ignored after consolidation.

PSLF is still an option, but once you combine your debt, the clock starts afresh.

Instead of being halfway to loan forgiveness, you’ll have to take another 10 years of payments to qualify.

It’s probably best to avoid consolidating in this situation and keep your relief progress going.

Is PSLF Consolidation Something You Should Do?

Even if you’re pursuing PSLF, consolidating your debts could be a good idea. Take into account this:

1. A reduced monthly payment is necessary: You can select a new repayment period when you apply for a direct consolidation loan. You can choose a loan with a duration of up to 30 years, which can significantly cut your payments and make your debt more affordable. However, if a smaller payment is your aim, an income-driven plan may make more sense because you’ll be eligible for forgiveness on the remaining sum after 20 or 25 years.

2. You want to be able to access IDR plans: IDR programs are not available for all federal loans. To get around this regulation, you can consolidate your debts into a single loan and then apply for an IDR plan. This might lower your monthly expense, and you’ll only have to deal with one payment. Do it as soon as you finish school to ensure that you begin the process of forgiveness as soon as feasible.

3. You’re still at the beginning of your payback cycle: If you haven’t started making payments yet or have only recently begun, you can combine your loans without losing too many PSLF qualifying payments. You may make progress toward loan forgiveness while simplifying your debt.

When Is Public Service Loan Forgiveness Not Worth It?

In addition to analyzing the advantages and disadvantages of loan consolidation, you should examine if PSLF is good for you. Participants must serve in the public sector for 10 years before debts may be erased.

PSLF is a hefty commitment for people who are still unsure of their professional path because a lot may happen in ten years.

If you quit your public service job while pursuing PSLF, you will not be eligible for forgiveness.

Because you must be on an income-driven repayment plan to qualify, your payments will be lowered and your loans will accumulate more interest than under other plans.

If you exit the PSLF program but continue on income-driven repayment, you will still receive forgiveness on the remaining sum.

It should also be noted that the PSLF initiative is still in its early stages. Because the program began in 2007, the first borrowers to qualify for PSLF were able to do so in 2017.

It came under investigation since only a small fraction of borrowers were allowed until the coronavirus-era PSLF exemptions became available in October 2021.

You may also like: 6 Tips To Try Instead Of Private Student Loan Forgiveness

Alternatives to PSLF Consolidation

Refinancing your student loans is another possibility. With this technique, you use a private lender to consolidate any or all of your debt, whether federal, private, or both.

The new loan will have a different payback duration, interest rate, and monthly payment. To qualify, you’ll need strong or exceptional credit and a steady income.

Note: You might try applying with a co-signer if you don’t have credit.

You won’t be eligible for PSLF or IDR programs if you refinance federal loans.

If you don’t plan to use federal loan advantages or wish to pay off your debt ahead of schedule, refinancing may be a viable alternative for saving money on high-interest private loans.

Refinancing may result in a cheaper interest rate if you qualify, however federal student loan consolidation is more effective for qualifying for specific repayment programs or lowering your cost by extending your payback period.

Before you continue, consider the additional benefits and drawbacks of refinancing.

Frequently Asked Questions