Do direct consolidation loans qualify for IDR?
If a loan type is listed as “eligible if consolidated,” this means that if you consolidate that loan type into a Direct Consolidation Loan, you can then repay the consolidation loan under the income-driven plan.
However, if your consolidation loan will require additional payments before reaching 25 years, you should consider your options about which loans to consolidate carefully. Consolidation loans that repaid a parent PLUS loan are only eligible for one IDR plan: the Income-Contingent Repayment (ICR) Plan.
However, borrowers with commercially held (private) Perkins Loans, Federal Family Education Loan (FFEL) loans, or Health Education Assistance Loan (HEAL) Programs do not automatically qualify for the IDR adjustment and must consolidate to be reviewed by ED.
A Direct Consolidation Loan allows you to consolidate (combine) one or more federal education loans into a new Direct Consolidation Loan for the purpose of lowering your monthly payment amount or gaining access to federal forgiveness programs.
A direct consolidation loan combines two or more federal education loans into a single loan. The fixed rate is based on the weighted average rate of the combined loans. Most federal loans are eligible for consolidation, but private loans are not.
If a loan type is listed as “eligible if consolidated,” this means that if you consolidate that loan type into a Direct Consolidation Loan, you can then repay the consolidation loan under the income-driven plan. For example, only Direct Loans can be repaid under the SAVE, PAYE, and ICR Plans.
All Stafford and Direct Consolidated Loans made under either the Direct Loan or Federal Family Education Loan (FFEL) Program (which guarantees private lender loans) are eligible for IBR.
Generally, your federal student loan debt has to exceed your annual discretionary income or it has to make up a significant portion of your annual household income. Parent borrowers aren't eligible. Parent PLUS Loan borrowers aren't eligible for IBR, even if they consolidate with a direct consolidation loan first.
Student loan consolidation has many benefits for student loan borrowers. For example, if you currently have federal student loans with multiple loan servicers, consolidation can greatly simplify loan repayment by giving you a single loan with one monthly bill.
Contact Your Lender
If you're struggling with your payments, contact your lender. Even though private student loans aren't eligible for loan forgiveness or income-driven repayment (IDR) plans, lenders often have their own programs to help borrowers avoid delinquency or default.
Is direct loan consolidation a good idea?
Student loan consolidation definitely has its benefits. Here are the biggest pros: Makes payment easy: The single, consolidated loan simplifies your student loan repayment with just one monthly bill — a perk for those dealing with different student loan servicers and thus multiple monthly bills.
| Eligible | Ineligible |
|---|---|
| Direct Subsidized Loans Direct Unsubsidized Loans Direct PLUS Loans Direct Consolidation Loans | Federal Family Education Loan (FFEL) Federal Perkins Loan (Perkins Loan) Student loans from private lenders |
What will count toward IDR forgiveness? The IDR account adjustment will result in loan discharges for: Borrowers who have made 20 or 25 years of payments (240 and 300 monthly payments, respectively), under any payment plan.
Loan consolidation can qualify you for Public Service Loan Forgiveness (PSLF), give you access to different repayment options, help you get out of default, combine your loans into a single payment, or change the interest rate on your loan. However, consolidating federal loans may cause you to give up other benefits.
Your monthly payment may go down, but you may have to pay longer. If you have unpaid interest, your principal balance will go up. Your new consolidation loan will generally have a new interest rate. You can lose credit for your payments toward income-driven repayment (IDR) forgiveness.
If the borrower qualifies for a deferment or forbearance, then loan payment can be postponed. Direct Consolidation Loans, like all federal education loans, do not have a prepayment penalty, so extra or unscheduled payments can be made to save time and money.
There is no income limit to qualify. If you have certain types of federal student loans, such as Perkins or FFELP loans, you may have to consolidate them before you can get on any IDR plan, including SAVE. Generally, the SAVE plan is best suited for people who earn the least relative to how much student debt they owe.
To get a debt consolidation loan, you will likely have to work on your DTI first. There are some lenders who will accept your application even if you have a high DTI, but it's not common and you may have to pay higher rates. Consolidation loans can also help reduce your DTI ratio by lowering your monthly debt payments.
Direct Subsidized Consolidation Loan — combines federal student loans eligible for interest subsidies, such as subsidized FFELP and Direct Loans, and Federal Perkins Loans. Direct Unsubsidized Consolidation Loan — combines federal student loans not eligible for interest subsidies.
And, generally, that debt does not become taxable unless it is discharged (canceled or forgiven). If that debt is discharged, you may well owe taxes on the amount you don't pay back. Loans that are not taxed as income include: Personal loans for credit card consolidation or major purchases.
What is the one time IDR adjustment?
The one-time IDR account adjustment will include a discussion of how FSA is conducting a onetime revision of every borrower's IDR payment counter, permanently fixing IDR payment counting going forward and processing expedited loan forgiveness for impacted borrowers.
- Pay more interest over time: Choosing to pay off your loan over 30 years will lower your monthly payment but cost you more in interest over time. ...
- No lower interest rate: The primary draw of refinancing is that you can often find a lower interest rate than what you're currently paying.
Income-driven repayment disadvantages
That means you might pay more under these plans in the long run — even if you qualify for forgiveness. It's likely you'll pay off your loan before forgiveness kicks in.
Yes, you can be denied access to income-driven repayment plans. The reason? Not having a partial financial hardship. This is a requirement for certain plans, such as Income-Based Repayment (IBR) and Pay As You Earn (PAYE) plans.
Income-Based Repayment (IBR) is a program that caps your monthly student loan payment at an affordable level based on your income, and then forgives whatever you still owe after 20 or 25 years. IBR is a type of income driven repayment plan (IDR) for federal student loans.
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