Student Loan Consolidation for Forgiveness: Do It Before or After the IDR Waiver?

Consolidating your federal student debt under one Direct Consolidation Loan can open the door to generous income-driven repayment (IDR) plans and loan forgiveness options. For some, consolidation is a means for simplifying loan repayment. But with the Biden Administration’s IDR Waiver — also referred to as the IDR Account Adjustment — millions of borrowers can fast-track student loan forgiveness through consolidation.

Many student loan borrowers need to take action to consolidate their loans by the end of the year. But others might benefit more from leaving their current loans intact. For example, if you have all Direct Loans with about the same amount of payment credit and last certified your income at a lower level, then consolidation likely isn’t in your best interest right now.

Let’s look at who needs to consolidate before the IDR Account Adjustment ends, as well as why someone might consolidate after the waiver expires.

What is the IDR Waiver?

The U.S. Department of Education is providing a one-time account adjustment to give federal borrowers payment credit toward loan forgiveness. By altering the definition of “time in repayment”, millions of borrowers will shave off years of repayment or receive immediate loan cancellation.

Under the IDR Waiver, borrowers can receive payment credit for:

• Time on any repayment plan, not just income-driven repayment plans.
• Most types of deferment (excludes in-school deferment).
• Time in forbearance if it was for at least 12 consecutive months or 36 cumulative months.

There are a lot more details to the IDR Account Adjustment. But for simplicity, you need to know:

1. Consolidating before the IDR Waiver ends could shorten your repayment significantly.
2. The deadline to apply for consolidation to reap the maximum benefit is April 30, 2024.

Note the IDR Account Adjustment deadline is strictly for applying on your end — not for processing your consolidation application, which usually takes about 30 to 45 days. As long as you apply by the end of the year, you’ll be good to go. Otherwise, student loan consolidation applications submitted in 2024 and beyond will be processed with a different set of rules that aren’t nearly as generous.

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Who should consolidate student loans for forgiveness before the IDR Account Adjustment ends?

Although you’ll be able to consolidate your loans at any time, some borrowers need to take action before the IDR Waiver expires. You should consider consolidating your student loans before the end of 2023 if you fall into one of the scenarios below.

You’ve been in repayment for decades and qualify for immediate forgiveness

If you’ve paid on your undergraduate loans for at least 20 years or 25 years for graduate loans, you can consolidate and get your entire loan balance wiped away tax-free.

The first round of borrowers who’ve made 240 or 300 months’ worth of qualifying payments began receiving total forgiveness letters in July 2023. But the Education Department will continue to send out notifications through the end of the year for borrowers receiving immediate forgiveness. 

You have the wrong type of loans for forgiveness

Some types of federal student loans have limited access to IDR plans with lower monthly payments and loan forgiveness options. For example, the only IDR plan available to borrowers with commercially-held Federal Family Education Loans (FFEL) is income-based repayment (IBR), which results in higher payments than the new SAVE plan.

Borrowers with federal Perkins Loans or Health Education Assistance Loan (HEAL) Program loans can also benefit from consolidating by the end of the year.

You want the maximum payment credit for PSLF

Only Direct Loans qualify for the Public Service Loan Forgiveness program (PSLF). So, if you have any non-Direct Loans, you should consolidate to get the most PSLF benefit under the IDR Account Adjustment. This includes consolidating any FFEL program loans, regardless of whether they are commercially-held or ED-held.

You want the maximum payment credit for IDR forgiveness

If you have student loans from many different years, across a long period of time, you can consolidate and get more credit toward 20- and 25-year forgiveness plans.

Under the IDR Account Adjustment, the new Direct consolidation loan will be awarded the maximum payment count based on the loan with the longest payment history. This includes student loan payments you’ve made, as well as additional credits for qualifying forbearance and deferment periods.

Reasons to consolidate after the IDR account adjustment

Once the IDR Account Adjustment period ends (April 30, 2024), you can still consolidate your student loans. You might consider consolidation for student loan forgiveness reasons or to benefit in other ways, such as to:

1. Streamline your loans. If you took out a bunch of different loans, consolidation could allow you to go from tracking multiple loans down to just one easy-to-manage loan.
2. Benefit from a weighted average payment count. After the IDR Waiver ends, any new loan consolidation will have the payment count adjusted based on a weighted average. This is a big difference from the IDR Waiver’s approach of taking the longest payment history into account. But if you miss out on the full benefit of the IDR Waiver, a weighted average payment count can still put you further ahead in your repayment journey.
3. Avoid the grace period after graduation. The six-month grace period doesn’t count toward forgiveness. But if you consolidate and start a payment plan right after graduation, you’ll bypass the six-month waiting period. This will allow you to take immediate advantage of interest subsidies, low monthly payments and forgiveness credit on the SAVE plan.
4. Get the same forgiveness timeline for all loans. By consolidating into one new loan, you won’t have to manage different forgiveness dates from multiple loans spread out over many years.

Keep in mind that consolidating doesn’t make sense for everyone, especially after the IDR Account Adjustment ends. You’ll need to look at the pros and cons of consolidating for your unique situation to avoid losing benefits you might not be aware of.

How to verify your IDR payment count: When will you be debt-free?

If you aren’t sure about your payment history, you can use the Department of Education’s payment tracker tools to figure out when you can say goodbye to your student loan debt for good.

• For PSLF borrowers. Use the PSLF Help tool to track your forgiveness payment count by visiting studentaid.gov/pslf.
• Non-PSLF borrowers. If you don’t work in the public or nonprofit sector, you’ll be able to track your IDR forgiveness payment count in the future. This payment tracker will be hosted on the Federal Student Aid website, starting in 2024 or later.

We recommend staying informed about your payment count both before and after the IDR Waiver ends. The Department of Education and its chosen loan servicers don’t have great reputations when it comes to their technology and systems. While some of those wrongs are being righted with the IDR Account Adjustment, there’s no way to know if you’re being awarded the correct additional forgiveness credit unless you’re informed.

You can look up your payment history using your NSLDS file on the Student Aid website, or you can call your loan servicer and ask what year your oldest loan exited its grace period. Be sure to account for any additional years where you were placed on in-school deferment.

For the fastest and most accurate option, you can reach out to our team. We’ll do the heavy lifting to figure out your projected payment count and create a custom repayment strategy that maximizes student loan forgiveness opportunities.