Should You Consolidate Your Student Loans Before June 30?

If you’re still paying off your student loans, you could qualify for one-time debt relief -- but you’ll need to act fast.

The US Department of Education is conducting a one-time payment adjustment to retroactively give some borrowers credit toward loan forgiveness. However, to qualify for the full benefit, you may need to consolidate your loans through the federal government’s Direct Loan program. The previous deadline to consolidate was April 30, but the Biden-Harris administration extended this deadline to June 30.

With the end of June quickly approaching, you might wonder whether it’s worth consolidating your federal student loans. Here’s how to decide if this option is right for you.

Read more: Another Student Loan Payment Pause Is Coming for Millions of Borrowers

Who should consolidate their student loans?

You could benefit from consolidating your federal loans if you have loans that aren’t eligible for forgiveness under an income-driven repayment plan like SAVE or another plan like the Public Service Loan Forgiveness Program. 

If you hold any of the below student loans, you’ll need to consolidate to be considered for a forgiveness program: 

• Federal Family and Education Loan Program loans held by a private lender: FFELP loans were issued by private lenders but backed by the federal government. You don’t need to consolidate if the Department of Education owns your FFELP loan. But if it’s owned by a private lender, like MOHELA, you’ll need to consolidate to opt into forgiveness options. 
• Perkins loans: The Federal Perkins Loan Program provides loans to both undergraduate and graduate students with extreme financial need.
• Health Education Assistance loans: Under the HEAL Program, the federal government insured some loans for graduate students studying medicine, pharmacy, veterinary medicine, dentistry, optometry and some other health-related fields.

If you hold any of the above loans and want to be considered for forgiveness programs, consolidating before June 30 will merge your loans into a new federal Direct Loan. Your past payments will still count, allowing you to potentially get forgiveness sooner.

Should you consolidate your student loans if you’re enrolled in SAVE?

Parts of the Biden administration’s SAVE plan were rejected by two federal judges. Right now, components of SAVE are on hold, including approving any new loan forgiveness for this program. But experts suggest consolidating your federal loans if it will help you qualify for an IDR like SAVE.

“While the future of student loan forgiveness is in flux, it’s highly unlikely that any decisions will be made that essentially discredit borrowers for payments already made,” said Leslie Tayne, a debt attorney and CNET Money Expert Review Board member. Tayne added that she believes it’s still worth pursuing the IDR plan that saves you the most money.

Even if you’re enrolled in SAVE, the one-time payment count adjustment is still happening. Taking advantage of this benefit could help you maximize your payment count. If forgiveness through SAVE is shot down completely, you can move to another IDR that offers debt relief.

Mark Kantrowitz, a financial aid expert and CNET Expert Review Board member, also says borrowers who can benefit from consolidating should still do so before the deadline expires at the end of this month. Kantrowitz added that the legal actions against save do not impact Public Service Loan Forgiveness or other income-driven repayment plans.

Am I eligible for student loan forgiveness?

There are two major federal student loan forgiveness programs you may be eligible for:

• Income-driven repayment plans: There are several IDR plans, all of which base your federal student loan monthly payment on your income and family size. If you haven’t paid off your full balance after 10 to 25 years of repayment, the government will wipe out your debt. Saving on a Valuable Education, or SAVE, is one type of income-driven repayment plan.
• Public Service Loan Forgiveness: Borrowers who work for a qualifying public service employer, like a school or not-for-profit organization, can have their federal loans forgiven after making 120 payments through the PSLF program.

Other loan forgiveness programs and discharge options are also available for teachers, those with disabilities and borrowers in special circumstances. You can find a full list of loan cancellation options at StudentAid.gov.

Why is there a June 30 deadline?

Historically, student loan forgiveness programs were plagued by issues, like inaccurate records and irregularities in how payments were applied, preventing most borrowers from receiving debt relief. For example, before the changes made to the PSLF program in 2021, 99% of borrowers were denied forgiveness.

The one-time payment count adjustment that the Department of Education is currently conducting will help borrowers get credit for payments that previously may not have qualified. The Department of Education will also count some periods of economic hardship, forbearance or military deployment toward repayment for forgiveness purposes.

The Department of Education has set the June 30 deadline to provide ample time to process the loan consolidation application and apply the payment adjustment. The department expects to complete payment adjustments by September 2024.

Do I need to consolidate my loans to qualify for forgiveness?

No, you don’t need to consolidate if you plan to seek IDR or PSLF forgiveness and your loans are currently held by the Department of Education. The June 30 deadline only applies to privately held FFELP loans, Perkins loans and HEAL loans.

The Department of Education is automatically making adjustments to loans it holds and updating accounts accordingly. Approximately 996,000 borrowers have already been notified that their loans were forgiven as of May 15.

Who shouldn’t consolidate their student loans?

You don’t need to consolidate your student loans by June 30 in the following circumstances:

• Your loans are already held by the Department of Education. You need not take any action to be considered for a forgiveness program.
• You aren’t seeking forgiveness through PSLF or an IDR plan. If you’re not eligible for forgiveness options, consolidating could cost you in the long run. You may lower your monthly payment, but it could stretch out your payment timeline and cost you more in interest.
• You have private student loans that aren’t backed by the federal government. Unfortunately, you can’t qualify for a Direct Consolidation Loan or forgiveness under PSLF or IDR if you have private student loans. Check with your lender to see if they offer relief programs.

Should I enroll in an IDR after consolidating my loans?

You should enroll in an IDR when you apply for consolidation if you’re working toward loan forgiveness through SAVE, PSLF or another program. Signing up for an IDR could lower your payments to as little as $0 per month and will automatically enroll you in any eligible forgiveness programs.

Will my student loans be forgiven if I consolidate?

Consolidating your student loans won’t wipe out your loan balance on its own, but it will allow the Department of Education to count your previous payment history to potentially speed up or maximize your debt relief. 

After you consolidate your loans into a Direct Consolidation Loan, you’ll still need to meet the requirements to qualify for loan forgiveness: You’ll need at least 10 years of qualifying employment and 120 payments to get forgiveness under PSLF, or 10 to 25 years of repayment for IDR forgiveness.

If you reach the requirements for forgiveness after you consolidate and the payment adjustment is applied, your loans will be forgiven. If you made more payments than you needed to for forgiveness, you may even get a refund.

How do I consolidate my student loans?

To consolidate your student loans, you’ll need to complete a Direct Loan Consolidation Application at StudentAid.gov. The process takes about 30 minutes. Here are the basic steps:

1. Verify your personal information. You’ll need to provide basic details like your name, date of birth, Social Security number, contact information and employment information.

2. Choose the loans you want to consolidate. The loans you choose will be consolidated into one new loan with a new interest rate.

3. Select a student loan servicer. Your student loan servicer is the company that’s responsible for collecting your payments and is typically your first point of contact if any repayment issues arise. If you’re working toward Public Service Loan Forgiveness, your servicer will be MOHELA. Otherwise, you can choose from any of the Department of Education’s servicers.

4. Choose your repayment plan. You can choose one of the following types of plans. Note that there are several options for each type of plan:

• Income-driven repayment plans: Your monthly payment is based on your income and family size.
• Fixed repayment plan: You’ll make the same monthly payment for the life of the loan, which is typically 10 years. Under the Standard Repayment Plan, you should pay off your loan in full after making 120 consecutive payments.

5. Provide at least two references. Your references will never be asked to repay your student loans, but your servicer may contact your references if they’re unable to reach you. You’ll need to choose someone who doesn’t live with you and who’s known you for at least three years.

6. Review and submit. Your final step is to read the loan contract, accept the terms and conditions and sign the application. Then, you’ll officially submit your application. 

Who can I talk to if I have questions about my student loan situation?

Navigating student loans can be tricky for anyone, but these resources can help:

• Federal Student Loan Information Center: If you have questions while filling out your consolidation application, contact the Federal Student Loan Information Center at 800-433-3243 or use the studentaid.gov live chat feature.
• Your servicer: If you’ve already submitted your Direct Consolidation Loan application, contact your loan servicer with questions.
• Local legal aid societies: If you need legal help dealing with student loans, search for a local legal aid society at LawHelp.org. If your income falls below a certain level, you may be eligible for free help.
• Department of Education’s Federal Student Aid Ombudsman Office: You can file a complaint with the Federal Student Aid Ombudsman Officer for some student loan issues, like problems with a servicer or a loan forgiveness application.