I consolidated my undergraduate loans into an FFEL Consolidation loan, disbursed in October 2007, owned by Nelnet. After that, I graduated, worked three years at a nonprofit, only to discover the payments I made during those years weren’t eligible for PSLF because I was paying on an FFEL loan, not a direct federal loan. I’ve also learned that that loan isn’t eligible for the new PAYE plan.

Since then, I’ve been in grad school, and now I have multiple direct federal loans from that, as well as my undergraduate debt hanging out there in the FFEL consolidation loan. I work in the arts and am planning to take advantage of PSLF, as well as PAYE (or REPAYE - I’m not entirely clear on the difference).

From what I’ve researched, my best option is to consolidate all my federal loans from grad school and my FFEL Consolidation loan from undergrad into a direct consolidation loan, and that the entire balance would be eligible for PAYE and PSLF. I also confirmed this with a customer service representative from the Dept of Ed.

I just finished grad school and have not yet made any payments on those loans, nor have I made any payments on the FFEL consolidation loan since starting grad school, so I don’t need to worry about losing “credit” for payments that would have counted toward PSLF.

But all this stuff seems so easy to screw up - can you confirm that this is correct, and are there any details or loopholes I need to worry about?

The biggest thing that you need to ensure is that all your loans are DIRECT loans. If you look up all your loans on the nslds website, they should say DIRECT in front of them and not FFEL. You’ll have to determine if consolidating all of them is in your best interest, but at a minimum all you’ll have to do is consolidate your FFEL loans. If you have only one FFEL consolidated loan to bring over, I believe you can turn it into a direct loan through the consolidation process, even though you technically aren’t merging it with anything. Look at the verbiage below:

From the Consolidation Application:
If you want to consolidate an existing Direct Consolidation Loan, you must include an additional eligible loan in the consolidation. However, you may consolidate an existing Federal Consolidation Loan into a new Direct Consolidation Loan without including an additional loan if you are:

• Consolidating a delinquent Federal Consolidation Loan that the lender has submitted to the guaranty agency for default aversion, or consolidating a defaulted Federal Consolidation Loan, and you agree to repay your new Direct Consolidation Loan under the IBR Plan, the Pay As You Earn Plan, or the ICR Plan;
• Consolidating a Federal Consolidation Loan to use the Public Service Loan Forgiveness program described in Item 18 of this Borrower’s Rights and Responsibilities Statement; or
• Consolidating a Federal Consolidation Loan to use the no accrual of interest benefit for active duty service members described in Item 8.
You may not consolidate an existing joint consolidation loan. A joint consolidation loan is a Direct Consolidation Loan or Federal Consolidation that was made jointly to you and your spouse.

The advantage of merging them all together makes the payments easier to manage (one single payment due date). The disadvantage (and IMHO a big one) is that you’ll have an interest rate that is slightly higher and if you ever decided not to do PSLF, you don’t have any option to make targeted payments towards the high interest loans. It may be to your advantage to just turn the FFEL loan into a Direct loan and keep the rest untouched. That’ll protect you a little more should PSLF not work out….(less interest accruing and you still have the option to make targeted payments). Run some calculations to determine what your interest would be in various scenarios.