If you borrowed before July of 2010, you may need to consolidate your loans in order to qualify for certain student loan repayment benefits, such as Public Service Loan Forgiveness and some income-driven repayment plans.
Why does it matter which type(s) of loans I have?
If you’re interested in the best student loan repayment benefits, you’ll want to have Direct Loans. If you borrowed any federal student loans before July 2010, there’s a good chance that some or all of your federal student loans are not Direct Loans. But that doesn’t mean you can’t qualify for the best repayment benefits—you can. All you’ll need to do is consolidate. If you consolidate, as a student borrower, here are some of the repayment benefits you could access:
- Income-Driven Repayment Plans:
- Revised Pay As You Earn Plan, or REPAYE
- Pay As You Earn Plan, or PAYE
- Income-Contingent Repayment Plan, or ICR
What are Direct Loans?
Direct Loans are those that are made to you, though your school, directly by the Department of Education. Since July 2010, almost all federal student loans are made under this program—in full, called the William D. Ford Federal Direct Loan Program.
Though the Direct Loan Program existed long before 2010, there was another bigger federal student loan program that most students relied on to finance their education: the Federal Family Education Loan (FFEL) Program.
Under the FFEL Program, loans were made by banks and ultimately guaranteed by the taxpayer in case you didn’t make your payments. In 2010, this program ended.
Loans from both of these programs are FEDERAL student loans. The main way the programs differ is in who made you the loan in the first place. Most of the benefits in the Direct Loan Program are available in the FFEL Program. However, FFEL Program loans are not eligible for Public Service Loan Forgiveness or the best income-driven repayment plans. This is where loan consolidation can help. It will effectively convert your FFEL Program loans into Direct Loans.
How do I find out which type(s) of federal student loans I have?
- Go to StudentAid.gov/login
- Log in using your FSA ID (You can’t use your Federal Student Aid PIN anymore!)
- Scroll to the loan summary section. Go through each of the loans that are listed. Use the list below to see if you need to consolidate any of your loans to qualify for the best repayment options.
What should I consider before consolidating?
First, evaluate whether you want any of the benefits that are available only in the Direct Loan Program. Consolidating your loans can increase the amount of interest that accrues on your loans, so if you’re not interested in these programs, you may not want to consolidate. Also, understand that, by consolidating your loans, you will start your forgiveness clock over. For example, if you were already on an income-driven repayment plan and consolidate your loans, then you will lose the any credit you had already earned toward forgiveness.
Lastly, understand that some of the loans that we called out for consolidation are those from another federal student loan program called the Federal Perkins Loan Program. Those loans have their own cancellation benefits that are based on your job. If you consolidate these types of loans, you will lose access to those cancellation benefits. Learn more about Perkins Loan cancellation here.
Now I know what type(s) of loans I have. What can I do?
- I don’t have any loans that I need to consolidate. Great! You can just go ahead and apply for the best income-driven repayment plans. After you’re set up on the plan you want and if you want to apply for Public Service Loan Forgiveness Program, get your employment certified for Public Service Loan Forgiveness.
- I need to consolidate all of my loans. No problem. The loan consolidation application only takes a few minutes online. You can even indicate your interest in Public Service Loan Forgiveness and apply for the best income-driven repayment plans in the application. After you’re set up on the plan you want and if you want to apply for Public Service Loan Forgiveness Program, get your employment certified for Public Service Loan Forgiveness.
- I have some loans that I need to consolidate, and some that I don’t. Okay, you’re a little trickier to advise. You’ll definitely have some loans that you’ll want to consolidate, but the real question is, should you consolidate all of your loans? Only consolidate what you need to? You can do either. It will be easier to keep track of your loans if you only have one, but as you can see in the above section, sometimes you’re better off not consolidating if you don’t have to. After you’ve figured this out, you can consolidate your loans and apply for the best income-driven repayment plans. After you’re set up on the plan you want and if you want to apply for Public Service Loan Forgiveness Program, get your employment certified for Public Service Loan Forgiveness.
If you’re confused, need help, or have questions, you can contact the Loan Consolidation Information Call Center at 1-800-557-7392 to get free advice.
Ian Foss is a Program Specialist and Nicole Callahan is a Digital Engagement Strategist at the U.S. Department of Education’s office of Federal Student Aid.