Student Loan Forgiveness if you Consolidate? Here’s How

Eligibility for forgiveness programs for consolidation loansOptions for private consolidation loansBottom line

Federal consolidation loans qualify for different forgiveness programs depending on your situation.

Student loan consolidation combines your loans into a single loan with a lower monthly payment and can lead to loan forgiveness. While student loan forgiveness might seem far-fetched, the Biden administration has introduced several fixes that have improved existing government programs. Those changes have led to the Education Department forgiving $25 billion in federal student loan debt. And it will push millions more borrowers to relief if the courts allow the Education Department to implement President Joe Biden’s loan cancellation plan.

Most federal consolidation loans are eligible for these loan forgiveness programs. Still, you may need to consolidate a second time, depending on the type of loan you have. You can complete the consolidation loan application online on the Federal Student AidFederal Student Aid (FSA)The office within the U.S. Department of Education that manages federal grants, work-study, and student loans. It runs the FAFSA, the StudentAid.gov website, and oversees the federal loan servicers. website, StudentAid.gov.

Unfortunately, private loans aren’t eligible for the programs listed below. Lawmakers are working to change that, but for now, you’ll want to explore other strategies for managing those debts.

Related: Are FFEL Consolidation Loans Eligible for Forgiveness?

Joint-spousal consolidation loans are eligible for many of these forgiveness options after President Biden signed the Joint Spousal Separation Act into law earlier this year. The Education Department is working on a de-consolidation application specifically for federal student loan borrowers who previously combined their loans with a spouse.

Eligibility for forgiveness programs for consolidation loans

1. Public Service Loan ForgivenessPublic Service Loan Forgiveness (PSLF)A federal program that forgives the remaining balance on Direct Loans after 120 qualifying monthly payments made while working full-time for a government or qualifying nonprofit employer.

‍The Public Service Loan Forgiveness (PSLF) Program promises tax-free forgiveness to full-time nonprofit and government employees — including active duty military service members — after a decade of work and 120 qualifying payments.

Eligible consolidation loans:

• All Direct Consolidation Loans and other Direct Loans.
• FFEL Program Loans, including FFEL Consolidation Loans and loans that paid off Parent PLUS Loans. But you must consolidate the loan a second time into the Direct LoanDirect LoanA federal student loan made directly by the U.S. Department of Education under the William D. Ford Federal Direct Loan Program. Most federal student loans issued since 2010 are Direct Loans. program.
• Federal Perkins Loans, but only if consolidated into a Direct Loan.

Learn More: PSLF Qualifying Employers List

2. Limited PSLF Waiver

The PSLF Waiver temporarily expanded the public service program by counting payments borrowers made on Federal Family Education Loans, under ineligible repayment plans, late payments, and payments for less than the amount due. The waiver, which ended Oct. 31, 2022, has canceled nearly $30 billion in student loan debt for over 240 thousand borrowers, according to the U.S. Department of Education.

Eligible consolidation loans:

• Direct Consolidation Loans, but not loans that paid off Parent PLUS Loans. Parent borrowers remain eligible for the PSLF Program after making 10 years’ worth of student loan payments under the income-contingent repaymentIncome-Contingent Repayment (ICR)The oldest federal income-driven repayment plan, with payments generally set at 20% of discretionary income or a fixed 12-year amount, whichever is lower. It is the only IDR plan available to Parent PLUS borrowers after consolidation. plan.
• FFEL Consolidation Loans, if consolidated into a new Direct Consolidation Loan.

Learn More: Should I Consolidate My Student Loans for PSLF?

3. Income-driven repaymentIncome-Driven Repayment (IDR)A category of federal student loan repayment plans that calculate monthly payments based on income and family size rather than loan balance. Any remaining balance can be forgiven after 20–25 years of qualifying payments. plan forgiveness

Each of the four income-driven repayment plans — IBR, ICR, PAYE, and REPAYE — cap your monthly payments at 10-20% of your discretionary incomeDiscretionary IncomeFor federal income-driven repayment plans, a borrower's adjusted gross income minus a set percentage of the federal poverty guideline for their family size. Monthly IDR payments are calculated as a percentage of this amount. and wipe away the remaining loan balance after 20 or 25 years. Pursuing income-driven repayment forgiveness makes sense if your student loan debt is over 1.5 times your annual salary because it’s unlikely you’ll make a dent in the balance without great sacrifice.

Learn More: When Will Student Loan Repayment Resume?

4. IDR Waiver

In April, the Education Department announced it would use one-time waivers and account adjustments to retroactively credit millions of borrowers with more payments toward loan forgiveness for public service work and through income-driven repayment options.

The IDR account adjustment will count the months you’ve spent on deferment (except for in-school defermentIn-School DefermentA period during which a borrower enrolled at least half-time in school is not required to make loan payments. Interest may or may not accrue during deferment, depending on the loan type.) before 2013 and time spent in long-term forbearances that lasted 12 straight months or over 36 cumulative months.

Eligible consolidation loans:

• All federal Direct ConsolidationFederal Direct ConsolidationThe combining of one or more federal student loans into a single new Direct Consolidation Loan. Consolidation can restore defaulted loans to good standing, change the servicer, and open access to certain repayment plans and forgiveness programs. Loans, including those that paid off Parent PLUS Loans.
• FFEL Consolidation Loans, if consolidated into a new Direct Consolidation Loan.

1. Total and Permanent Disability

If you can’t work due to a permanent physical or mental disability, you may qualify to have your student debt canceled. To be eligible for a total and permanent disability discharge, you must provide documentation from your doctor, the Social Security Administration, or the Veterans Administration proving your disability.

Eligible consolidation loans:

• All federal Direct Consolidation Loans, including those that paid off Parent PLUS Loans.
• FFEL Consolidation Loans, if consolidated into a new Direct Consolidation Loan.

Options for private consolidation loans

Private student loanPrivate Student LoanA student loan issued by a bank, credit union, or other private lender rather than the federal government. Private loans generally lack federal protections like income-driven repayment and broad forgiveness programs. borrowers rarely have any forgiveness or cancellation opportunities. Banks and online lenders make money from the interest you pay each month. Those financial institutions would lose money if they wrote off your balance.

If you can’t keep up with the payments, ask your loan servicerLoan ServicerThe company that manages a borrower's federal student loan account, processes payments, and handles applications for repayment plans, deferment, forbearance, and forgiveness on behalf of the U.S. Department of Education. about available repayment programs.

You can also look to refinance for a lower interest rate and longer repayment term. The key to getting the best terms when refinancingRefinancingTaking out a new private loan to pay off one or more existing student loans, usually to lower the interest rate or change the repayment term. Refinancing federal loans into a private loan eliminates federal benefits like IDR and PSLF. is credit. The better your credit score, the more likely it is that private lenders will give you a competitive offer.

Learn More: Refinance Student Loan Lenders

Bottom line

Student loan forgiveness is possible for consolidated federal loans. But watch out for scams and get out of defaultDefaultThe status of a federal student loan after the borrower has failed to make required payments for 270 days. Default can trigger collection actions such as wage garnishment, tax refund offset, and damage to credit reports.. Forgiveness isn’t typically an option for defaulted loans.

Let’s talk if you’d like help getting the right strategy for your loans. I’ve helped thousands of borrowers figure out the right plan that lets them buy a home, retire, and live their life without worrying about their student debt.

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