Exceptions to Student Loan Repayment Consolidation impact on Loan Forgiveness

In previous blogs we have recommended to consolidate your loans under the federal direct consolidation process as soon as possible.  Simplification is the primary reason which will minimize the risk of missing a payment or defaulting.

Another reason to consolidate is to qualify for the Federal Service Forgiveness Plan.  If you are employed or plan to work for a government or non-profit agency, having direct loans will qualify these loans and repayment for forgiveness after 120 on time payments.

There are a few exceptions that you need to consider.  If you have Perkin Loans, which are Federal loans, these have a lower interest rate and can have a better forgiveness program than the normal plans.  You need to see if it is significant, based on the federal loans you are consolidating.  The primary purpose of  student loan consolidation  is to make the repayment method easier.

With many careers requiring post graduate degrees, students are taking on additional debt to attend graduate school.  If you have earned on time credits toward the forgiveness program for your undergraduate degree you should not consolidate these new graduate loans with the prior loans.  If you do consolidate both loans you may forfeit the payment credits you have already earned.

This would make your repayment and forgiveness a little more confusing with tracking two consolidated loans but this may maximize your loan forgiveness opportunity.

Remember, if you qualify for the Federal Service Forgiveness Plan keep good records of your employment and payments.   The minimal amount of time is normally 7 years for tax reasons.  In this case you may need to keep the records for a substantially longer time since it needs to validate the 120 payment while working full time at a qualifying job.

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