Borrowers Have Just Weeks to Apply

Federal borrowers have just weeks remaining to apply for a loan consolidation that could give them student debt relief.

The Department of Education plans to complete all account adjustments for student loan borrowers by July 1, but an earlier deadline will determine if many end up receiving student loan relief.

According to President Joe Biden’s guidance, all borrowers without direct federal loans should consolidate their debt by April 30. Doing this means they will potentially join thousands of other borrowers in getting debt relief.

“It is a limited opportunity to move debt much closer toward forgiveness, and it is potentially life-changing for many,” attorney Michael Lux, who founded The Student Loan Sherpa, told Newsweek.

The account adjustments are intended to decide which borrowers made the qualifying number of payments on their income-driven repayment plans or public service loan forgiveness but still haven’t earned their debt relief.

Generally, the Department says it looks at the accounts every other month to determine eligibility, with all adjustments planned to be done by July 1.

“In general, it takes at least 60 days to process a direct consolidation loan application and to disburse the new loan. This means that if you want to consolidate your loan(s) in order to get the benefit of the adjustment, you should submit a loan consolidation application by April 30, 2024,” the Education Department’s guidance said.

All borrowers can complete the application online through the Federal Student Aid site.

To qualify for an automatic account adjustment, you had to have been in the Federal Family Education loan program, with your loans held by the Education Department. But everyone who had commercially held loans in the FFEL program would need to consolidate their loans into the direct loan program if they want to take advantage of the help.

Still, the specifics can be a bit murky, and many complications arise if you choose to consolidate but it wasn’t actually the best option.

“Many borrowers don’t need to consolidate,” Lux said. “For some borrowers, consolidation could be a mistake. For others, consolidation is the best possible decision.”

For some, like those who have loans in their own name and Parent PLUS loans, it would be a huge mistake to consolidate as this combination could limit repayment plan options due to the Parent PLUS loan status eligibility, Lux said.

Nadia Vanderhall, financial planner at The Brands + Bands Strategy Group, said many student loan borrowers are unsure where their loans currently stand in terms of consolidation.

“I’ve seen some people unsure that their loans had been transferred or that some of their payments not showing up correctly,” Vanderhall told Newsweek. “I would then have them look into their budgets to see what would be a better range of payments that would allow them to breathe better.”

Borrowers need to read the terms of consolidation and know how it would impact them today as well as in the long run, she said. Some might end up paying more interest overall due to the extended term.

“Be mindful of if the interest rate changes,” Vanderhall said. “This could be critical to knowing if the new payment amount is going to go more towards the principal balance than the interest. Not all loans qualify, so doing a check to see if you will before going through the process is key.”

Student Debt in America

Already, thousands of borrowers have seen their debt cleared under the new adjustments. Biden also announced 74,000 more borrowers would see $5 billion in relief, including 44,000 public servants. The rest of the group were borrowers who made at least 20 years of payments on income-driven repayment plans.

“My administration is able to deliver relief to these borrowers—and millions more—because of fixes we made to broken student loan programs that were preventing borrowers from getting relief they were entitled to under the law,” Biden said in a statement.

Many federal student loan borrowers have been struggling to keep up with payments once they resumed in October. For three years beginning in the pandemic, federal payments paused, and debt holders had some temporary relief.

The Education Department plans to meet again on Feb. 22 and 23 to approve further debt relief under the Higher Education Act of 1965. Initially, the Education Department’s relief plan was struck down by the Supreme Court, but via stakeholder negotiations, Biden is hoping to get more relief passed.

Vanderhall anticipates some further form of relief is likely to be passed in the next few months, but it might not include all groups who are pushing for it.

“This relief would allow borrowers to feel it within their budgets at a time of high inflation but also within their stress levels,” Vanderhall said. “Both are critical right now due to the economy being so uncertain. They would save more money than they anticipated and then be able to use those savings to help pay down other debt or get ahead when it comes to saving for retirement or other goals.”

While it’s not a one-size-fits-all approach, the choice to consolidate is an easy option for many.

“It’s a huge game changer for me,” Chris Kee, a Mississippi State graduate who is currently paying back student loans, told Newsweek. “Having multiple loans for repayment is hard to keep track of and getting them rearranged under one financial statement makes it so much easier for me to develop a plan to pay them back.”

“For many recent graduates, it’s tough enough to balance all your other expenses on top of multiple student loan sources. The group together makes a financial game plan easier to create.”