Do You Have to Consolidate Loans to Enroll in SAVE?

What It IsEligibility RequirementsBottom Line

Do you have to consolidate your loans to enroll in the SAVE PlanSAVE Plan (SAVE)The Saving on a Valuable Education Plan, a federal income-driven repayment plan introduced in 2023 to replace REPAYE. Its implementation has been subject to ongoing litigation, and enrolled borrowers have faced court-ordered forbearance periods.? The answer depends on the types of federal student loans you have.

If you have only Federal Direct Loans, you can enroll in the SAVE Plan without consolidating your loans. But if you have Federal Family Education Loans (FFEL), Perkins Loans, or a mix of Direct and non-direct loans, you must consolidate your non-direct loans into a Direct Consolidation Loan to become eligible for the new SAVE Plan and access its benefits.

In this article, we’ll explore the SAVE Plan, loan eligibility, the consolidation process, and factors to consider when deciding whether to consolidate your loans for this new repayment plan.

What is the SAVE Plan?

The SAVE (Saving on a Valuable Education) Plan is a new 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 for federal student loans. It replaced the Revised Pay As You EarnRevised Pay As You Earn (REPAYE)A former federal income-driven repayment plan that capped payments at 10% of discretionary income, with forgiveness after 20 or 25 years. REPAYE was replaced by the SAVE Plan in 2023. Plan. This new IDR Plan offers borrowers lower monthly payments based on their income and the opportunity for loan forgiveness after a certain period. President Biden introduced the SAVE Plan as the most affordable repayment plan with the fastest path to IDR forgivenessIDR ForgivenessThe forgiveness of any remaining federal student loan balance after a borrower has completed 20 or 25 years of qualifying payments under an income-driven repayment plan, depending on the specific plan..

To be eligible for the SAVE Plan, borrowers must have qualifying federal student loans. Some loan types may require consolidation to access the plan’s benefits.

Loan Eligibility and Consolidation Requirements for the SAVE Plan

To determine whether you need to consolidate your loans for the SAVE Plan, it’s essential to understand which loans are eligible without consolidation and which require consolidation.

Loans Eligible Without Consolidation:

1. Direct Subsidized Loans
2. Direct Unsubsidized Loans
3. Direct Grad PLUS Loans

If you have only these 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. types, you can enroll in the SAVE Plan without consolidating.

Loans Requiring Consolidation:

1. Federal Family Education Loans (FFEL)
2. Perkins Loans
3. Other federal loans (e.g., Nursing Student Loans, Health Professions Student Loans)

To access the SAVE Plan’s benefits, you must combine these loans into a new Direct Consolidation Loan. If you have a mix of Direct and non-direct loans, you MUST consolidate your non-direct loans to qualify for the SAVE Plan.

Learn More: Are Parent PLUS Loans Eligible for SAVE?

To determine your loan types, log in to your 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. account ( StudentAid.gov) or contact 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. for a detailed breakdown. They can help you understand which loans are eligible for the SAVE Plan without consolidation.

The consolidation process combines multiple federal loans into a single Direct Consolidation Loan with a fixed interest rateFixed Interest RateAn interest rate that stays the same for the life of a loan. Federal student loans carry fixed rates; some private student loans offer fixed or variable options.. You can apply for consolidation through the Federal Student Aid website. The application process is straightforward, and consolidation typically takes 30-60 days to complete.

Consolidation: Process, Implications, and Factors to Consider

The consolidation process involves combining multiple federal loans into a single Direct Consolidation Loan. To apply for a Direct Consolidation Loan, follow these steps:

1. Log in to your account on the Federal Student Aid website ( studentaid.gov) and select “Consolidate My Loans.”
2. Choose the loans you want to consolidate and confirm your loan servicer.
3. Choose your repayment plan, which can be the SAVE Plan or another repayment plan.
4. Submit your application and wait for approval. The consolidation process typically takes 30-60 days to complete.

As part of the application process, you can apply for the SAVE Plan. The IDR application will ask you for your family size, marital status, tax information, and your spouse’s income if you filed a joint return. The Department of Education will use that information to identify 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 then calculate your monthly payment amount.

Related: SAVE Plan and Married Filing Separately

You can also choose not to apply for an income-driven plan and instead enroll in the Standard Repayment PlanStandard Repayment PlanThe default federal repayment plan, which spreads loan payments evenly over 10 years — or up to 30 years for consolidation loans. It usually results in the lowest total interest paid among federal plans.. If you later decide to switch to the SAVE Plan, you can submit a paper IDR application to your loan servicer or apply online through the Federal Student Aid website.

But there are implications to consider when consolidating your loans:

• Interest rates: The interest rate on your Direct Consolidation Loan will be the weighted average of the interest rates of the loans being consolidated, rounded up to the nearest one-eighth of a percent.
• Repayment terms: Consolidation may extend your repayment term up to 30 years, depending on your loan balance. While this can lower your monthly payment, it also means you may pay more in interest over the life of the loan.

Before deciding to consolidate your loans for the SAVE Plan, consider these pros and cons:

• Pros: Consolidation lets you access the SAVE Plan’s benefits, such as lower monthly payments and loan forgiveness. It also simplifies your repayment by giving you a single monthly payment. And it resets your forbearance and deferment time.
• Cons: Consolidation may result in a longer repayment period and more interest paid over time. It may also cause you to lose certain benefits associated with your original loans, such as interest rate discounts or loan cancellation benefits.

If you’re pursuing PSLFPublic 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. or other loan forgiveness options, understand how consolidation could affect your eligibility and progress towards forgiveness.

Related: How Consolidation Affects Public Service Loan Forgiveness

Bottom Line

Consolidating your loans for the SAVE Plan can be a great way to simplify your repayment and access the plan’s benefits, such as lower monthly payments and loan forgiveness. But you must understand which loans require consolidation and the potential implications of the consolidation process.

Before deciding to consolidate your loans and enroll in SAVE, consider exploring other repayment options that may better suit your individual circumstances. These alternatives include:

1. Income-Based RepaymentIncome-Based Repayment (IBR)A federal income-driven repayment plan that caps monthly payments at 10% or 15% of discretionary income, depending on when the loans were taken out. Remaining debt is forgiven after 20 or 25 years of qualifying payments. (IBR) Plan
2. 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. (ICR) Plan
3. Standard Repayment Plan

If you’re unsure whether consolidation and the SAVE Plan are right for your specific situation, seek personalized guidance. Consult your student loan servicer, a financial aid advisor, or a student loan expert to discuss your unique circumstances and determine the best strategy.

You can also find valuable resources and personalized advice through:

1. Federal Student Aid website
2. Reputable student loan advice organizations like The Institute of Student Loan Advisors

You could also book a consultation with our team.

Remember, taking the time to understand your options and making an informed decision based on your individual needs can help you manage your student loans and work towards a debt-free future.