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Forbes
22-05-2025
- Business
- Forbes
Here's Who May Want To Consolidate Student Loans And Who Shouldn't
In a previous Forbes post, I warned that consolidating your federal student loans right now could erase years of hard-earned progress toward student loan forgiveness. For borrowers already on track through Public Service Loan Forgiveness or Income-Driven Repayment, hitting reset at the wrong moment can delay or destroy your debt-free future; however, consolidation isn't always a mistake. For some borrowers, especially those with older federal loans or who are in default, consolidating may be the only way forward, or at least the best path. The challenge is figuring out which group a student loan borrower falls into. For some student loan borrowers, consolidation is necessary or optimal despite the risks: FFEL, Perkins, or Older Loan Borrowers: If you have federal loans that are not Direct Loans (such as FFEL Program loans held by commercial lenders, Perkins loans from a school, or older federal loans), consolidation is typically required to access programs like PSLF. These loans aren't eligible for PSLF unless converted into a Direct Consolidation Loan. For borrowers in this category, consolidation may still be worthwhile; it starts your forgiveness clock, whereas without consolidating, you have no clock. For instance, an FFEL borrower working in public service cannot earn PSLF credit until they consolidate into Direct. That said, these borrowers should be highly mindful of timing. The Education Department had extended the consolidation deadline for the one-time adjustment to June 30, 2024, specifically to help FFEL borrowers carry over past time in repayment. Post-deadline, if you consolidate now, those past years on FFEL might not count. You'll be starting fresh toward PSLF or IDR forgiveness. If you've already accrued 15 or 20 years on FFEL loans, understand that consolidating in 2025 likely means resetting your timeline, an unfortunate reality if the special adjustment relief wasn't secured before the deadline. Defaulted Loan Borrowers: Given the sharp rise in student loan delinquencies, borrower default may be forthcoming for millions. Borrowers who default might use consolidation to get out of default and back into good standing. If you're rehabilitating your loans or consolidating to exit default, the priority is to resolve the default status – since in default, you can't make qualifying payments anyway. For these borrowers, there's little to lose regarding forgiveness counts (months in default don't count toward IDR or PSLF). The sooner you get out of default and into a qualifying repayment plan, the better, as you can work to reverse a decrease in your credit score and ward off wage garnishment or Social Security offsets. Just be aware that consolidating will wipe away any prior qualifying payments you made before default. It may be a necessary trade-off to restart the journey. On the other hand, many borrowers should think twice and perhaps hold off on consolidating right now: Direct Loan Borrowers with Progress Toward Forgiveness: If all your loans are already Direct and you've been making qualifying payments toward PSLF or IDR forgiveness, you typically don't need to consolidate. For example, borrowers who previously consolidated during the pandemic payment pause to take advantage of the IDR waiver already have their loans in the right status. Consolidating again to simplify or change servicers could be detrimental. Until the legal cloud lifts, it behooves most borrowers to avoid any unnecessary consolidation that would restart their count. This is especially true if you are only a couple of years away from reaching 120 PSLF payments or hitting that 20- or 25-year IDR mark. Let those clocks run out and claim forgiveness rather than resetting the clock. SAVE Plan Enrollees: Borrowers who planned to benefit from the SAVE plan's more generous terms might consider consolidation to join SAVE (for instance, consolidating Parent PLUS loans, which are ineligible for SAVE, into a new loan that could access a different plan). However, given the injunction on SAVE, now is not the time to consolidate solely to get into that plan. The SAVE plan's future is highly uncertain pending court outcomes. Also, consolidating Parent PLUS loans only makes them eligible for the older ICR plan (or the contested SAVE, if it returns), and you'd lose any credit for time already spent in repayment. Until there's clarity on SAVE, consider holding off major moves like this unless necessary. Borrowers Looking to Merge Loans for Convenience: Some borrowers consider consolidation to merge multiple loans into one for ease of a single payment or potentially to switch servicers. In 2025, that convenience isn't worth the cost if you've made any progress toward forgiveness. Consider consolidation as pressing a reset button on your repayment journey; it's likely not worth it to streamline billing, especially when servicers can often link accounts or when autopay can handle multiple payments. The potential loss of tens of thousands of dollars in forgiven debt (by extending your repayment term further) far outweighs minor convenience factors. The upshot for student loan borrowers is that they assess which of the above categories they fall into before consolidating their student loans. Consolidation is not inherently bad, but it's also not neutral. In today's chaotic student loan landscape, and given the tremendous uncertainty hanging over the Education Department, the SAVE plan, PSLF eligibility, and myriad other factors, consolidation may be your best or only path forward; but it could also be your most significant setback. Simply put, if you have defaulted on student loans or hold older FFEL loans, consolidation may be the only way to regain eligibility. If you're close to forgiveness or enrolled in a qualified plan, consolidation could wipe out everything you've earned. Before consolidating in the near future, ask yourself the following questions: The coming months may bring more clarity around the landscape for student loans. For many, it may be worth waiting until there is more concrete detail about what student loan borrowers are trading off for consolidation.
Epoch Times
07-05-2025
- Business
- Epoch Times
Crackdown on Student Loan Defaulters to Begin With Benefit Seizure, Then Wage Garnishment
The U.S. government will begin seizing federal benefits from 195,000 student loan defaulters in June, with wage garnishment notices set to reach 5.3 million borrowers later this summer, the Education Department The renewed enforcement effort begins with the Treasury Offset Program, which allows the federal government to intercept tax refunds, Social Security checks, and other federal payments to recover unpaid student debt. Borrowers affected by the program began receiving notices this week, the department said. 'Starting today, approximately 195,000 defaulted student loan borrowers will begin receiving an official 30-day notice from the U.S. Department of Treasury notifying them that their federal benefits will be subjected to the Treasury Offset Program,' the Education Department said in Monday's announcement. Following the notice period, administrative wage garnishment will begin later this summer for all 5.3 million borrowers who remain in default. Guaranty agencies have also been authorized to resume involuntary collections on defaulted loans under the Federal Family Education Loan (FFEL) Program, the department added. The move officially ends a pandemic-era freeze first imposed in March 2020 under President Donald Trump and extended multiple times under the Biden administration. Although payments officially resumed in fall 2023, most collection efforts remained paused—until now. In an April 21 percent of the 42.7 million federal student loan borrowers were current on their loans, while nearly 10 million were delinquent or in default. The remainder were in forbearance, deferment, or grace periods. Related Stories 5/6/2025 5/5/2025 'Student and parent borrowers–not taxpayers–must repay their student loans,' the Education Department said at the time. 'There will not be any mass loan forgiveness.' As of early 2025, To help borrowers avoid wage garnishment or benefit offset, Federal Student Aid (FSA) has launched direct outreach and expanded support services, encouraging borrowers to enroll in income-driven repayment (IDR) plans, make voluntary payments, or begin loan rehabilitation. Alongside the repayment restart, the Education Department also issued a Dear Colleague The letter reminded institutions that the cohort default rate—the share of former students who default soon after leaving school—must stay below 40 percent in a single year or 30 percent for three years in a row, or the school risks losing access to Pell Grants and federal student loans. To mitigate that risk, the department urged schools to immediately contact former students with reminders of their loan obligations and information on repayment plans. 'As we begin to help defaulted borrowers back into repayment, we must also fix a broken higher education finance system that has put upward pressure on tuition rates without ensuring that colleges and universities are delivering a high-value degree to students,' Secretary of Education Linda McMahon said in a statement. 'For too long, insufficient transparency and accountability structures have allowed U.S. universities to saddle students with enormous debt loads without paying enough attention to whether their own graduates are truly prepared to succeed in the labor market.' The department also said it plans to publish institution-level nonpayment rates later this month to increase transparency and accountability across the higher education sector. The enforcement restart follows the collapse of former President Joe Biden's sweeping student loan forgiveness plan, which aimed to cancel hundreds of billions in debt through executive action. The Supreme Court struck down the plan in 2023, ruling that the administration lacked the authority to cancel loans without congressional approval. In April, McMahon made clear that the department would no longer pursue blanket debt forgiveness. 'American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies,' McMahon said in April. 'The executive branch does not have the constitutional authority to wipe debt away, nor do the loan balances simply disappear.' While supporters of Biden's proposal argued that widespread forgiveness would reduce inequality and stimulate economic growth, critics said it was fiscally reckless and unfair to borrowers who had already repaid their loans—or never borrowed at all.
Forbes
21-04-2025
- Business
- Forbes
One Mistake Could Erase Student Loan Forgiveness Progress Overnight
Thinking about student loan consolidation? For income-driven repayment and public service loan ... More forgiveness borrowers, the wrong move could disqualify you from student loan forgiveness. If you're racing toward student loan forgiveness, whether through Public Service Loan Forgiveness or an Income-Driven Repayment plan, one false move could wipe out years of progress: consolidating your federal loans at the wrong time. Loan consolidation can be a valuable tool in some cases, but in 2025, it comes with unique risks. Thanks to legal upheavals in the student loan system, federal borrowers who consolidate now may see their qualifying payment counts reset to zero, erasing the credit they've earned toward loan cancellation. In today's uncertain environment, marked by a court injunction against the SAVE repayment plan and other litigation that has paused key borrower protections, this is arguably the worst time to consolidate your loans. Under standard rules, consolidating federal loans means starting over on the path to student loan forgiveness. A Direct Consolidation Loan is treated as a brand-new loan, so any prior payments you made under PSLF or IDR no longer count toward the required threshold. The Department of Education has explicitly warned borrowers of this effect as the NSDFC notes: "Borrowers who consolidate will have their PSLF counts temporarily reset to zero." In the context of IDR plans, consolidation restarts the clock toward the 20 or 25 years of payments needed for forgiveness. Until recently, this hard reset was softened by a special one-time account adjustment that the Department of Education was implementing: borrowers who consolidated by specific deadlines could retain credit for past repayment time (including time on older FFEL loans or periods of long forbearance) toward IDR and PSLF. However, that one-time IDR count adjustment program officially ended in January 2025. If you missed the deadline, consolidating now will likely cost you all those prior months or years of progress. Consolidating mid-stream can wipe the slate clean for both IDR- and PSLF-driven student loan forgiveness: Public Service Loan Forgiveness: Only payments made on Direct Loans count toward PSLF. If you previously had FFEL or Perkins loans, you'd need to consolidate into a Direct Loan to qualify, but doing so ordinarily meant losing any PSLF credits earned. Today, unless you have consolidated by the waiver deadlines, any PSLF credits you built up on Direct Loans will be lost upon a new consolidation. The Department of Education's guidance notes that if you consolidate loans after September 1, 2024, past qualifying payments on those loans will not automatically transfer. Your count may revert to zero in many cases. This means a teacher or nurse who made 5 or 6 years of qualifying payments could see their 120-payment countdown start over from scratch by consolidating. Income-Driven Repayment Forgiveness: All IDR plans promise loan forgiveness after a set repayment period, but the clock counting those years can be reset if you combine loans. Years in repayment before consolidation wouldn't count toward the 20- or 25-year requirement unless applied via the [no longer available] 2025 may be especially problematic to consolidate for borrowers aiming for student loan forgiveness. Due to ongoing legal battles over the SAVE plan and other borrower protections, the student loan landscape is in flux. The SAVE plan was supposed to offer lower payments and faster forgiveness for millions. But in late 2024, a federal court blocked the SAVE plan, questioning the administration's authority to implement certain forgiveness provisions. In February 2025, the 8th Circuit Court of Appeals imposed an injunction halting SAVE and even pausing aspects of its predecessor, the REPAYE plan. This injunction has thrown many borrowers' repayment strategies into chaos. For months, the Education Department responded by freezing critical programs. In February 2025, the department abruptly closed its online applications for all IDR plans and Direct loan consolidations. Borrowers could not switch repayment plans or consolidate loans online for about a month. As Persis Yu, Deputy Executive Director of the Student Borrower Protection Center, said during an interview, "This has thrown the entire system into chaos... it is not entirely clear what it is going to mean for those borrowers". While the IDR application (and consolidation request) was eventually put back online by late March 2025 after advocacy and a lawsuit from the American Federation of Teachers, grave uncertainty remains. Notably, the forgiveness components of most IDR plans are still paused due to the court order. This means that even if you reach the finish line for forgiveness, the Department of Education might not process the discharge immediately (unless you switch to the older IBR plan created by Congress and not affected by the injunction). PSLF is also indirectly affected; borrowers who were enrolled in the SAVE plan found themselves in limbo for months. Around 8 million people on SAVE have effectively been in a forbearance status for eight months, during which their payments were paused. In such a turbulent policy environment, consolidating carries extra risk because it's unclear how or if past credits will be handled going forward. With the one-time adjustment program over and with the SAVE plan tied up in court, there is ambiguity about whether any retroactive credit will apply if you consolidate now. The Education Department has encouraged some borrowers close to forgiveness to consider switching plans (for example, moving to IBR) to get their forgiveness, but no such workaround exists for consolidation. If you consolidate in 2025, you are essentially betting that the legal situation will sort itself out favorably – a gamble that could cost you years of payments if it doesn't. Consolidating federal student loans is a double-edged sword. In a stable policy environment, it can be a smart move for those who need it; however, in 2025's unstable landscape, it can be a costly mistake for many borrowers, resetting the progress that would have led to student loan forgiveness. Until the legal dust settles and until we know the fate of the SAVE plan and related forgiveness provisions, it's wise to hold off on optional consolidations. Protect the progress you've made. In this season of uncertainty, the best course for many borrowers is to stay put, keep making qualifying payments, and remain vigilant for policy updates. Don't let a well-intentioned consolidation today erase your hard-earned path to a debt-free tomorrow.
