Good afternoon,

if a graduate consolidates their federal loans into a new Direct Consolidation Loan (DCL) the interest capitalizes into the principal amount of the new loan.  Is a new loan issued with funds disbursed to “payoff” the existing underlying loans or is it treated in a separate fashion?  The reason I ask is; can that interest be treated as if it was paid for the purpose of taking the student loan interest deduction?  I was told by a loan servicer that they do not issue a 1098-E when the loans are consolidated away.  I am wondering if the consolidation process is treated differently than simply borrowing money (new loan) to pay off the principal and interest of an old loan.

When I consolidated I received a 1098-E from both Sallie Mae/Navient and Nelnet for all the interest that was paid. You should get one too if you consolidate.