Key Points
- Borrowers with older federal student loans, specifically FFEL loans, have a critical deadline of April 30, 2024 to consolidate these into Direct Loans for a chance at loan forgiveness due to the Payment Count Adjustment
- The one-time payment count adjustment by the Department of Education aims to rectify previous administrative oversights by loan servicers
- This plan is part of the broader Biden Administration effort to alleviate the student loan crisis.
Borrowers with older student loans, specifically Federal Family Education Loans (FFEL) or Perkins Loans, need to consolidate their student loans by April 30, 2024 in order to be eligible of the one-time Payment Count Adjustment.
This initiative is set to occur this summer, offering a lifeline to borrowers seeking either complete cancellation of their student loans or substantial credit toward such cancellation.
The Department has outlined specific steps for borrowers of certain federally managed loans, including Commercially held FFEL, Parent PLUS loans, Perkins loans, and Health Education Assistance Loan (HEAL) Program loans, to consolidate them.
This consolidation is crucial as it makes the newly formed Direct Consolidation Loan eligible for the adjustment.
One-Time Payment Count Update
The one-time payment count update aims to give borrowers credit for payments made since July 1, 1994, including certain periods of deferment, economic hardship, and forbearance.
This adjustment is anticipated to significantly aid borrowers in meeting the cancellation criteria typically associated with Income Driven Repayment (IDR) plans.
Under IDR plans, federal student loans can be canceled after 10, 20, or 25 years of qualifying payments, depending on the specific plan.
Furthermore, for those pursuing Public Service Loan Forgiveness (PSLF), the adjustment will count additional payment periods towards the program's 10-year payment requirement, provided other eligibility criteria are met.
There are currently 8 million student loan borrowers that have old FFEL loans that may be eligible for this program. While not all will qualify for loan forgiveness, it has the potential to help a significant number get closer to the loan forgiveness they were promised when they originally enrolled in these programs.
Other Benefits
Even if your loan is not forgiven under the one-time adjustment, consolidating your loan into a new Direct Consolidation Loan may also allow you to take advantage of the new repayment plan Saving On A Valuable Education (SAVE). This program will allow you to start paying just 5% of your discretionary income, starting July 1, 2024.
This has the potential to save a significant amount of money for borrowers.
For borrowers in default, consolidating your loan will also allow you to take advantage of the Fresh Start program to get back on track with your student loan. If you meet the requirements, the default will be removed from your credit report.
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Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him on the About Page or on his personal site RobertFarrington.com.
He regularly writes about investing, student loan debt, and general personal finance topics geared toward anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications, including the New York Times, Wall Street Journal, Washington Post, ABC, NBC, Today, and more. He is also a regular contributor to Forbes.
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