Student Loan Consolidation
Overcoming challenges when it comes to repaying your student loans.
Like credit card debt, student loans can often be consolidated to roll all of your education debt into one simplified monthly payment. However, although both types of debt can be consolidated, they must do so separately and the rules for student loan consolidation work a little differently than they do for unsecured debt.
The information below is designed to give you a basic introduction to student loan consolidation and forgiveness programs. If you have questions about your loans you can call the StudentAid.gov helpline at 1-800-557-7392. For problems with credit card debt or if you’re addressing challenges with multiple types of debt at once, call Consolidated Credit at or complete an online application to request a free confidential debt and budget evaluation from a certified credit counselor.
How to consolidate federal student loans
Most federal student loans – whether they are subsidized or unsubsidized – can be consolidated using one of five federally available programs. These programs are designed to roll all of your federal student loan debt into one monthly payment. It simplifies your payment schedule so it’s easier to pay back what you owe. In many cases, it also makes it easier to pay your loans back.
Here’s a quick overview of each program:
- Standard repayment plan. This program is the most straightforward. Your loans are consolidated into one payment that’s based on how much you owe, in total. The term of your loans is extended from the standard 10-year term to 25 years. This usually reduces the monthly payment amount so the debt is more manageable on a limited budget.
- Graduated repayment plan. This program pays off your loans on an accelerated schedule. Your loans are rolled into one payment that starts small then increases gradually over time. The idea is that you pay more as you advance up in your career so you can eliminate the debt faster. The term is still extended to 25 years.
- Income-based repayment (IBR) plan. This is the first of the three hardship programs. If you can’t make your payments because they are too high, this rolls all of your federal student loan debt into one payment that’s based on your annual taxable income. The payments are set at 15 percent of your gross income.
- Income-contingent repayment (ICR) plan. This is similar to an IBR but the payments are set at a slightly higher percentage of your taxable income. Instead of 15 percent of your gross income, payments are broken up at 20 percent of your gross income. The term is still 25 years, as it is with all consolidation programs.
- Pay as you earn plan. This is the plan for borrowers who are really struggling. Payments are set at 10 percent of your gross income, but your income level is compared regularly to the Federal Poverty Line (FPL) in your state. If you’re below a certain limit on the FPL scale, your payments may be reduced even more or reduced to zero in some cases until you’re making more money. Even while you’re not paying, you stay current on your loans. For this program, the loans must have been taken out after October 1, 2007 with at least one disbursement since October 1, 2011.
To qualify for any of the hardship programs, your gross annual income (the income that can be taxed) is compared to the Federal Poverty Line of the state where you reside to confirm that you’re in a hardship situation. In most cases, as long as your income is no more than 150 percent of the FPL where you live, then you can use these programs.
For all programs, the term – i.e. the length of the loan – is extended from 10 years to 25 years. In the case of hardship programs – particularly with Pay as You Earn – you may not eliminate your debt in-full by the end of the term. In that case, the remaining balances are forgiven without penalty after 25 years of payments made on time. In some cases, if you work in public service and consolidate using one of the programs outlined above, you can have your balances forgiven sooner. Read on to learn more…
Understanding student loan forgiveness
Public servants – i.e. anyone who works in a public service field – are offered a specialized path for student loan forgiveness after ten years. Basically, all you have to do is work in an approved field in public service and then use a federal consolidation program to consolidate your student loan debt. So a public sector nurse or teacher would qualify, but a nurse or teacher who works for a private for-profit institution would not. Police, firefighters, other first responders and civil public servants all qualify, too.
If you work in one of those positions, you simply apply for a consolidation program that fits your needs. After 10 years of making payments to the program on time, you’re eligible for student loan forgiveness. This means that any remaining balances on your loans are forgiven without penalties – i.e. you don’t have to pay anything more and the debt is erased as if you paid it off in-full.
2 ways to complete the process
There are two paths you can take to consolidate your federal student loans. You can go through the entire process yourself. You download the forms you need from the StudentAid.gov website, fill them out and submit them yourself.
If you want to go through a student loan forgiveness program as a public servant, you have to choose FedLoan Servicing (PHEAA) as your loan servicer. If you only want to consolidate without public servant forgiveness, you can choose any servicer listed on the website. You choose the repayment plan that works for you – keeping in mind that some require income comparison with the Federal Poverty Line in your state.
Of course, if all of this sounds complicated, paperwork-ridden and time-consuming, then you can use a federal student loan consolidation service. This is essentially a document preparation service that goes through the paperwork and does things like FPL calculations for you. They take the guesswork out of the process to help you understand exactly which program fits your situation and then do all the legwork for you.
If you decide to use a service, be cautious when it comes to companies who charge upfront fees. In some cases, they could take your money and then tell you later that you don’t qualify to consolidate. Always opt for a company that offers free evaluations or one that includes a money-back guarantee if you have to pay up front.
What about private student loans?
Not all student loans go through the federal government. In some cases, you may have taken out private student loans from a financial institution. These would be loans you get from a company that required a credit check and went through a traditional lending process – instead of the loans you get through the FAFSA.
For private student loans, the five programs and forgiveness path described above don’t apply. In other words, you can’t consolidate your private loans on an IBR or Pay as You Earn plan. Instead you need to go back to the loan servicer – i.e. whoever loaned you the money – and work out a payment plan or settlement plan with that lender individually.
There are also companies that can help consolidate private student loans similar to what you see with credit card debt. In some cases, they also offer consolidation of federal and private student loan debt together. Just be careful. Once you consolidate in this way, your federal student loan debt becomes private student loan debt. In other words, you can’t use this option then decide to use a federal consolidation program later in order to qualify for forgiveness.