Don’t miss this April 30 deadline for loan forgiveness. What you need to know.
(MIRROR INDY) — Hoosiers who’ve been paying back federal student loans for years may be eligible to have their debts wiped out completely during a one-time payment adjustment this summer.
But some borrowers will need to take an extra step to get the most debt relief possible.
The federal government is asking borrowers with certain types of loans — including Parent PLUS and Perkins loans — to consolidate their debts by April 30 so that they can benefit from the changes.
This is part of a wider effort from President Joe Biden’s administration to address student debt after the Supreme Court struck down a plan that would have canceled up to $20,000 in student loans for many Americans.
Income-driven repayment plans take a percentage of the borrower’s income as the minimum required payment each month. They also require the borrower to make regular loan payments for a period of time — 10 years, for example — in order to have their loans forgiven.
Under the government’s payment adjustment, some cases of forbearance, which is a temporary pause, and deferment will be counted toward the total time a person needs to pay a loan in order to get debt relief. That means that if you have been paying back loans for 10 years, but you spent two of those years in forbearance, you may now get credit for 10 years of payments.
Some people — mostly those who have been paying loans back for years — may become eligible for total loan forgiveness. People seeking public service loan forgiveness could also get credit toward their required 10 years of payments.
Many Hoosiers have already seen student debt relief. As of early April, 53,440 Indiana borrowers had seen nearly $2.5 billion in outstanding student loan debt canceled, according to the federal Department of Education. That amounts to more than $46,000 per person.
Here’s what to know about how to apply for consolidation.
What is loan consolidation?
Consolidating student loans essentially means rolling multiple student loans into one new loan.
For example, if you have a $5,000 and a $10,000 student loan you pay each month, consolidating would mean you’d have one $15,000 loan — not including interest. Your new interest rate is the weighted average of the rates on your two old loans, meaning the interest rate on the larger loan has a higher weight than the smaller loan.
There are several advantages to consolidating your loans, including a lower monthly payment. However, merging loans may mean it will take longer to pay them back.
Do I need to consolidate?
People who have Parent PLUS loans, Perkins loans, Health Education Assistance Loans and non-governmentally-held Federal Family Education Loans need to apply to have their loans consolidated in order to be eligible for the upcoming adjustments.
Most of these, with the exception of Parent PLUS, are no longer providing loans to borrowers. The health assistance loan, for instance, ended in 1998. However, many people who took out these loans are still paying them back today.
Consolidation can take at least 60 days to be approved. The government is expecting that the payment adjustment will be complete by July 1.
Upon applying to have your loans consolidated, the government recommends you sign up for an income-driven repayment plan, such as the Saving on a Valuable Education plan, commonly known as SAVE.
How will that get my debt canceled?
The adjustment means that you could get more credit for months — or even years — of time that wouldn’t previously have counted toward loan forgiveness. That means some borrowers will see their student loans forgiven, or even get a refund if they overpaid, come summer.
For example, the SAVE plan offers relief after a maximum 20 years of payments on undergraduate loans. If you’ve been making payments for 17 years but spent three years in forbearance, you may be eligible to have the remainder of your student loan balance forgiven.
The three years of COVID-19 payment pause — from March 2020 to September 2023 — will count as time in repayment for all borrowers, according to the Federal Student Aid website.
Also, if you’ve been paying back a Parent PLUS loan for at least 25 years, you’ll automatically have the remainder of your loan canceled through the adjustment.
However, you must be enrolled in an income-driven repayment plan to be eligible for cancellation after a period of years.
How do I know what kind of loan I have?
You can find out what type of loan you have on the Federal Student Aid website, under the “My Aid” tab under your name in the upper right-hand corner. That tab will show information about your current loans.
How do I consolidate my loans?
Apply to consolidate your loans on the Federal Student Aid website: studentaid.gov/loan-consolidation/.
You will need a Federal Student Aid ID number, as well as your personal, financial and loan information to complete the application.
Locally, Hoosiers can get help with their student loans from INvestEd Indiana, a local organization that offers free help with loans, FAFSA and more. You can reach INvestEd representatives at 317-715-9007 or by emailing outreach@investedindiana.org.
Claire Rafford covers higher education for Mirror Indy in partnership with Open Campus.
Got a higher ed story? Contact reporter Claire Rafford at claire.rafford@mirrorindy.org or on social media @clairerafford.