Hi Heather,

I received my masters in 2007 and since then consolidated to a Federal Direct Loan and made about 15 qualifying payments towards the Public Service Loan Forgiveness program.  I am applying to doctoral programs this year to begin in 2013. 

I am wondering what will happen to my qualifying direct loan payments after I finish my doctorate.  Will I still be able to continue accruing qualifying payments (and keep the 15 I’ve already made) on the balance after I consolidate to a new direct loan or will the number of qualifying payments be reset to zero?  Should I keep the direct loan I have now separate from any future direct loan for my upcoming schooling? 

Also, will I continue to accrue interest on my current direct loan while I’m in school full time for my doctorate?

Thank you so much for your help!

My opinion is that we’re still fighting this fight, but to be safe you must keep your new loans separate from the old one you have made qualifying payments on.  Indications from the Dept of Ed are that if you roll the old loans into a new consolidation loan, the underlying loans are gone and the payments would be gone then too.

I’ll paste my argument below, but I may well lose this fight, so protect yourself by acting with caution.

There is significant precedent for allowing PSLF on only those portions of consolidation loans that are eligible for discharge.  Although a consolidation loan repays the underlying loans that make up the new consolidation loan, consolidation loans do not always extinguish defenses applicable to the underlying loans.  See Crawford v. American Inst. of Prof’l Career, Inc., (D. Ariz. Feb. 8, 1996), available at http://www.consumerlaw.org/unreported. 

Additionally, there are circumstances in which portions of consolidation loans are eligible for statutory discharge while other portions are not.  In these instances, it is necessary to consider which of the underlying loans are eligible for discharge and which are not

• When consolidation loan borrowers qualify to receive school-related discharges (closed school, false certification, and unpaid monthly refund), only the portion of the consolidation attributable to the discharge-eligible loan will be discharged.  34 C.F.R. § 682.212(d)-(f).
• For joint consolidation loans, if one of the borrowers dies or becomes disabled, the portion of the joint consolidation loan attributable to that borrower’s loans will be discharged.  34 C.F.R. §§ 682.402(a)(2), 685.220(1)(3)(i), (iii). 
• If one joint consolidation loan borrower qualifies for a school-related discharge or for teacher loan forgiveness, the portion of the joint consolidation loan attributable to that borrower’s loans will be discharged.  34 C.F.R. § 685.220(1)(3)(k)(iii).