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Student Loan Forgiveness Deadline Extended: Less Than a Month Left to Maximize Your Debt Relief

As with refinancing, student loan consolidation combines your existing federal student loans into a fixed-rate loan.

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Student Loan Forgiveness Deadline Extended

Student Loan Forgiveness Deadline Extended: Your chance to increase your forgiveness amount is running out if you have federal student loans.

To maximize debt relief benefits for borrowers, the Department of Education is reviewing past student loan payment counts. Consolidating federal loans that are not eligible for forgiveness could help you qualify for more relief. However, you must apply by June 30 for this benefit.

You may be able to receive student loan forgiveness sooner if you consolidate certain federal loans, regardless of whether you qualify under the White House’s latest plan or an existing program.

Learn how to decide if loan consolidation is right for you, how it could maximize your debt relief, and how to consolidate loans online.

How does student loan consolidation work?

As with refinancing, student loan consolidation combines your existing federal student loans into a fixed-rate loan.

You may not be eligible for forgiveness programs if you have FFELP, Perkins or other nondirect federal student loans. You may be eligible for automatic loan cancellation, interest forgiveness, or other debt relief benefits if you consolidate your old loans into a new Direct Loan and enroll in an income-driven repayment plan.

Your whole balance could be forgiven automatically if you qualify for an IDR plan and have been making payments for 20-25 years.

Consolidating loans offers other benefits as well. Having one student loan to keep track of, rather than many, can also make payment management easier. Consolidation loans may lower your monthly payments but also extend your repayment period, depending on the payment plan you choose. You might not have to worry about this if you can get forgiveness after consolidating.

You may benefit from consolidating Direct Loans, even if you already have them, says Mark Kantrowitz, a financial aid expert and member of the CNET Expert Review Board.

It rarely makes sense to convert your federal student loan into a private loan, even if these programs offer lower interest rates or other perks. Private student loans are not eligible for federal income-driven repayment programs or federal debt relief.

Can I consolidate my student loans to lower my interest rate?

Generally, if your federal student loans have low interest rates, you won’t have to worry about your new consolidated rate spiking.

According to Federal Student Aid, the Department of Education’s official student loan website, the interest rate on your new Direct Consolidation Loan will be based on a weighted average of your current loans and will be rounded up to the next 1/8th of 1%.

Nevertheless, there is one exception. If you have an FFELP loan, you may lose some benefits if you consolidate. “The main issue is borrowers who have a significant interest rate reduction from the FFELP lender,” Kantrowitz said. Consolidating the loans will eliminate these discounts, which are provided by the lender.”

You don’t have to consolidate all of your loans, so you might exclude your FFELP loans if you’d like to maintain your current discount. In order to decide if consolidating is right for you, you must consider whether you are eligible for forgiveness and how it will affect your monthly student loan payment.

Whenever you consolidate a student loan, the unpaid interest will be capitalized and could increase your principal balance. Take that into consideration when determining your new monthly payment and forgiveness eligibility.

Should I still consolidate my student loans if I don’t know if I’m eligible for forgiveness?

It is possible to maximize your potential debt relief by consolidating your federal student loans if you have federal student loans that aren’t Direct Loans. Consolidating your student loans can also help you lock in a fixed interest rate if any of your federal student loans have a variable interest rate.

By consolidating your loans, you can ensure you get credit for your new Direct Loan starting with your earlier loan payment date, according to the latest student loan forgiveness program.

So let’s say you graduated from college in 2004 and made your first federal student loan payment. Then, in 2010, you returned to school for a second degree and started paying those loans. Your 2004 loans could be forgiven this year under an income-driven repayment plan with a 20-year forgiveness path. In this year’s loan consolidation, you could wipe out your entire balance by combining your older loans with your more recent ones into a new Direct Loan.

Whether you graduated recently or not, consolidating your federal loans and enrolling in an IDR can help you get forgiveness sooner.

However, if you do not qualify for debt relief, this step may not be worthwhile for you. “If you will never pursue debt forgiveness (i.e., even IDR forgiveness), then you do not need to go through this step,” Kantrowitz said.

Consolidating student loans

Consolidating federal student loans is easy at StudentAid.gov. To meet the deadline, you must submit your application before midnight local time on June 30. You will lose some benefits after this date.

You will need your Federal Student Aid ID, some personal information, financial information, and loan information to complete the application. According to the FSA website, the consolidation application takes approximately 30 minutes to complete.

The consolidation process can take up to 60 days after you submit your application. During this time, your student loan payment count may drop to zero. Don’t worry, it just means your adjustment count is being processed.

Is there a penalty for missing the deadline?

It is still possible to get credit for past direct loan payments if you consolidate your loans after June 30. However, you might not get as much credit. Your payment count will instead be based on a weighted average or may reset to zero. Still, you may be eligible for a debt relief program.

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