I thought I’d take a few minutes to write a follow up to Jeff Gitlen’s informative piece on consolidation of federal student loans over on LendEDU.com.
As a student loan attorney, we have learned several tricks to take advantage of ways to reduce student loan debt while avoiding the traps in consolidation. Consolidation is often misunderstood as a way to reduce interest rates. Jeff emphasizes that this is not accurate, rather the loans remain at a market weighted average of what they were before the consolidation. But it is much more convenient to have one loan, with one payment and one servicer. Not only does it makes payment easier, it makes enrollment in income driven plans much simpler. Same with the annual certification of your proof of income – only one place to send your proof of income. One payment. Nice and simple.
But consolidation is much much more. You can actually change your loan type through a consolidation. Did you know that prior to 2010, 80% of all federal loans were the older Family Federal Education Loans (FFEL). And importantly, FFEL loans are ineligible for Public Service Loan Forgiveness. I know of LOT of people who didn’t know this and have loans outstanding from prior to 2010 – and they aren’t getting the relief Congress intended through the PSLF – people who are counting on their loans being forgiven after 10 years of public service. Consolidation of the FFEL loans to Direct loans would have fixed this problem that we’re now seeing in droves. A recent GAO report shows only 55 borrowers have qualified for PSLF to date due in large part to having the wrong loan type or in the wrong payment plan. Read about this more in this Student Loan Nightmare story focusing on two of our PSLF clients by ABC Action News.