Am I Doing the Right Thing By Consolidating This Student Loan for Forgiveness?


Dear Steve,

I consolidated my undergraduate loans into an FFEL Consolidation loan, disbursed in October 2007, owned by Nelnet. After that, I graduated, worked three years at a nonprofit, only to discover the payments I made during those years weren’t eligible for PSLF because I was paying on an FFEL loan, not a direct federal loan. I’ve also learned that that loan isn’t eligible for the new PAYE plan.

Since then, I’ve been in grad school, and now I have multiple direct federal loans from that, as well as my undergraduate debt hanging out there in the FFEL consolidation loan. I work in the arts and am planning to take advantage of PSLF, as well as PAYE (or REPAYE – I’m not entirely clear on the difference).

From what I’ve researched, my best option is to consolidate all my federal loans from grad school and my FFEL Consolidation loan from undergrad into a direct consolidation loan, and that the entire balance would be eligible for PAYE and PSLF. I also confirmed this with a customer service representative from the Dept of Ed.

I just finished grad school and have not yet made any payments on those loans, nor have I made any payments on the FFEL consolidation loan since starting grad school, so I don’t need to worry about losing “credit” for payments that would have counted toward PSLF.

All this stuff seems so easy to screw up – can you confirm that this is correct, and are there any details or loopholes I need to worry about?



Dear Kay,

I completely agree this stuff can make your brain melt. There is so much bad advice out there and even loan servicers often get this stuff wrong.

According to this Department of Education guidance you can consolidate an existing FFEL Consolidation Loan into a direct loan and you can also add your current federal loans to the consolidation at the same time.

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“You apply for a Direct Consolidation Loan through StudentLoans.gov. This process offers both electronic and paper options. You can complete the electronic application as explained below or you can download and print a paper application from StudentLoans.gov for submission by U.S. mail.

Once you sign in to StudentLoans.gov, you will be able to electronically complete the Federal Direct Consolidation Loan Application and Promissory Note. The electronic application on StudentLoans.gov consists of the following five steps:

1. Choose Loans & Servicer
2. Repayment Plan Selection
3. Terms & Conditions
4. Borrower & Reference Information
5. Review & Sign

Do You Have a Question You'd Like Help With? Contact Debt Coach Damon Day. Click here to reach Damon.

After you submit your application electronically via StudentLoans.gov or by mailing a paper application, the consolidation servicer selected will complete the actions required to consolidate your eligible loans. The consolidation servicer will be your point of contact for any questions you may have related to your consolidation application.

It is critical that you continue making payments, if required, to the holders or servicers of the loans you want to consolidate until your consolidation servicer informs you that the underlying loans have been paid off.” – Department of Education

When it comes to repayment programs, I’m less thrilled about REPAYE for someone in your situation. REPAYE will require 25 years of payments since you would include graduate loans. Additionally, REPAY has that nasty dual income catch if you ever decide to get married. You can see past articles on REPAYE here.

PAYE however only requires 20 years of repayment and is capped at 10 percent of discretionary income.

PAYE plan participants must have loans disbursed after October 1, 2007.

Once you take these steps then your payments should be eligible under the Public Service Loan Forgiveness program as long as you have qualifying full-time employment.

Damon Day - Pro Debt Coach

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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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