Are You Eligible for Student Loan Consolidation?

Debtor’s prison was abolished a long time ago, but student loans can feel like a ball and chain for college graduates, burdening them with high monthly payments for years on end. Here’s some good news: the government has authorized changes in federal policy to make federal student loans easier to repay.

If you qualify, you might be able to get an interest rate reduction if you consolidate your loans, and under certain conditions, you might be able to reduce your monthly payments. There are three major elements to the new federal plan: loan consolidation, income-based repayment and consumer protection.

Loan consolidation
Many student loan borrowers have more than one type of loan. This means you have to make more than one payment every month, which is a hassle. The government has proposed a loan consolidation program to encourage people to combine certain types of student loans, which spares you and the government the hassle of multiple payments, and also makes you eligible for a 0.25 percent interest rate reduction on consolidated loans.

Who can consolidate under this program?
The consolidation is being suggested for people who have at least one Federal Family Education Loan and one Federal Direct Loan Program loan. The former loans, FFELs, aren’t being made any more. However, some continue to pay off the FFELs that they received before the program ended.

What are the benefits?
If you qualify, you can consolidate your FFEL loan or loans and your Federal Direct Loan Program loan or loans into a Special Direct Consolidation Loan. If you do so, you will have only one loan to repay. You will be eligible for a 0.25 percent interest rate reduction on the FFEL loans you consolidate. Plus, if you repay the loan through the Education Department’s automatic debit system, you’ll get an additional 0.25 percent off the entire consolidated loan balance.

Do I qualify?
To find out whether you qualify for this program, go to the National Student Loan Data System to look up your loans.

Income-based Repayment
Do I qualify for income-based repayment?
Right off the bat, it’s important to ask this question, because this proposal only applies to borrowers who took out their first loans in 2008 or later. You do not qualify if you took out your loans in 2007 or earlier, if you graduated in 2011 or earlier, or if you are already in repayment on your loan.

Yes, I qualify. How does it work?
The proposal speeds up changes that were already in the works for Income-Based Repayment, a plan that has been around since 2007. These changes will cap monthly payments at 10 percent of your discretionary income and will forgive the balance of the debt after 20 years of payments that started in 2014.

Consumer Protection
As you wade through the morass of student loans, two government websites have been launched to help you find your way. The first is Know Before You Owe which can help you compare the costs of different college options. The second, the Student Debt Repayment Assistant, helps people deal with their student loans. The sites were created by the Consumer Financial Protection Bureau and the Department of Education.

Links revised June 2018.

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