The Biden administration has set a crucial deadline for student loan borrowers seeking forgiveness. By consolidating multiple federal student loans before April 30, borrowers can take advantage of the U.S. Department of Education’s revamped income-driven repayment plans. This initiative has already resulted in debt relief for over 930,000 individuals and $45 billion in forgiveness. Expert Mark Kantrowitz believes that loan consolidation offers many more borrowers the opportunity to qualify for student loan forgiveness.
Income-driven repayment plans, established in 1994, determine borrowers’ monthly payments based on a percentage of their discretionary income. These payments are generally lower than those under standard repayment and can even be zero under certain plans. After 10, 20, or 25 years, depending on the plan, any remaining debt is typically forgiven. However, a challenge for borrowers in these programs is managing multiple loans acquired at different times, leading to various timelines for forgiveness.
The Biden administration is temporarily permitting borrowers to consolidate their loans and receive credit retroactively to their initial loan payment. By merging loans, borrowers can potentially qualify for immediate forgiveness on all loans, regardless of the forgiveness timeline for each loan individually. Normally, consolidating student loans could reset the forgiveness timeline, but until April 30, this detail has changed. All federal student loans, including Federal Family Education Loans, Parent Plus loans, and Perkins Loans, are eligible for consolidation.
Borrowers can apply for a Direct Consolidation Loan through StudentAid.gov or their loan servicer. As long as the application is submitted by April 30, borrowers should be in good standing, even if processing takes longer. Some borrowers may become eligible for forgiveness after just 10 years of payments under the new income-driven repayment plan, known as the SAVE plan. Consolidation should not increase monthly payments since income-driven repayment plans are based on earnings rather than total debt.
Before consolidating, obtaining a comprehensive payment history for each loan is recommended to ensure receiving the full credit deserved. Payment history is crucial from the loans’ initial repayment entry, not when they were borrowed. If a borrower suspects a payment count discrepancy, they can reach out to their loan servicer or file a complaint with the Department of Education’s Federal Student Aid unit.
The deadline for consolidating student loans for forgiveness presents a unique opportunity for borrowers to streamline their loans and potentially expedite the forgiveness process. By understanding the eligibility criteria and implications of consolidation, borrowers can make informed decisions to alleviate their student loan debt burden. Taking advantage of this deadline could be a significant step towards financial freedom for many individuals struggling with student loan repayments.