I have a student that has consolidated his existing federal loan into the IBR Public Service repayment option. He is currently working FT and paying off the loans. He wants to attend a masters program part-time and borrow additional federal loans. Will he be able to consolidate these new loans into the current repayment schedule and obtain the benefit of Public Service option without losing any of the time he has already put in to making payments toward the 120 payment requirement?

The answer to your question is somewhat in debate and your student needs to take care not to loose credit for whatever qualifying payments he has made.  It is likely that a new consolidation loan will be seen as paying off the underlying loans, and thus erase those qualifying payments. On the other hand, there is precedent for treating some parts of new consolidation loans differently, as in the case of closed school discharges.  For this reason, we will need further advocacy and conversation with the Department of Education.  I’m concerned that reconsolidation, as in the example you give, could be a trap for unwary borrowers.  Please caution your student that he may need to keep the loans separate and should look for updated information at some point.

Hi Heather!  I have a graduating student who has her undergraduate loans (about $50,000) consolidated with Federal Direct with an amazing interest rate that she’d prefer not to lose.  Her law school debt is low, about $20,000, so she may not qualify for a partial financial hardship unless all her debt is considered.  Can she have two consolidations - one law school and one undergrad - and have the total count towards total debt for IBR PFH purposes and have the remainder forgiven at the end of 10 years, assuming right kind of job and right kind of payment? 

If she does need to consolidate everything into one loan, how is the interest rate for the new consolidation figured out?  I know it involves an average, but do they use the underlying undergraduate loan percentages or the consolidation loan percentage?

This is my first time asking a question on your forums, hope it was clear!

Maureen

Sorry if I didn’t answer this sooner!  I thought I had!

Consolidation rates are based on the weighted average interest rate on the underlying loans (the ones that are paid off by the new consolidation loan).

She can have more than one consolidation to keep the higher interest rate loans separate if she wants to preserve her ability to repay the higher interest rate loans first.

Let me know if other questions come up!

Hi Heather! Two-part question:

From 2007-2009 I made 30 payments on my undergraduate Direct loans under the standard repayment plan, while working for a 501c3. Am I correct that these payments do not count toward PSLF because I paid under the standard repayment plan?

Since then, I have taken out $80,000 more in federal, stafford, and PLUS loans to pay for graduate school. To get started, should I consolidate these loans with my undergrad loans? Or should I apply for IBR? What’s the first step?

Thank you!

That depends.  Standard 10-year repayment or a longer term?

Be careful to understand whether you’ve made qualifying payments or not BEFORE you decide about consolidating them together. A consolidation loan may be seen as paying off the underlying loans, and you could lose qualifying payments. I’m working on getting the Dept of Ed to recognize that they could allow borrowers to earn loan forgiveness on a portion of a consolidation loan, but that’s in debate. 

If your grad school loans are FFEL loans, you’ll need to consolidate to get into Federal Direct, but be careful to keep them separate from the undergrad Direct loans.  And yes, it probably makes sense to choose IBR for both sets of loans if your working towards PSLF.

I paid those undergraduate loans under a Standard 10-year plan. Does that count toward PSLF?

By applying for IBR, are the loans I select automatically consolidated? Or do I first have to do the consolidation process, then apply for IBR?

Thanks!

Consolidation and repayment plan selection are separate, but borrowers can submit their request to be placed into IBR at the same time they consolidate.  There isn’t anything automatic it.

Standard 10-year repayment technically counts as an eligible repayment plan for PSLF, but if you pay off your loans yourself, there isn’t anything left to forgive!