Should You Consolidate Student Loans for PSLF?

Consolidating your federal student loans can simplify your payments, and in some cases, can help with eligibility for Public Service Loan Forgiveness (PSLF) and income-driven repayment plans.

Be aware, however, consolidation can also sometimes delay forgiveness via the PSLF program by “resetting the clock.” Let’s look at why and when to try PSLF consolidation.

What is Public Service Loan Forgiveness?

Public Service Loan Forgiveness (PSLF) is a federal program providing total loan forgiveness to borrowers who make 120 qualifying payments while working for an eligible nonprofit organization or government agency.

Only federal loans, not private loans, qualify for PSLF. You must be a full-time employee to be eligible for PSLF. It’s recommended to submit your PSLF form annually or when you change employers to ensure you stay on track to meet all PSLF eligibility requirements. You must also have federal Direct loans (including Direct Consolidation loans) and make payments toward them under an income-driven repayment (IDR) plan.

Depending on your salary and loan balance, PSLF can save you a significant amount of money. To estimate how much you could receive in forgiveness, check out our PSLF calculator.

Do you need to consolidate student loans for PSLF?

PSLF consolidation is only required in order to make your federal student loans eligible for an income-driven repayment plan.

This is the case, for example, with Federal Family Education Loans (FFELs) and Perkins loans — they must be consolidated via a Direct Consolidation Loan so that you can enroll in an income-driven repayment plan and thus join PSLF.

Similarly, if you funded a child’s education through a parent PLUS loan, you would also need to get a consolidation loan to qualify for PSLF.

A federal Direct Consolidation Loan combines some or all of your federal student loans into a new loan with one student loan servicer and one monthly payment. Your new interest rate will be the weighted average of your previous loans’ rates, rounded to the nearest 1/8 of a percent.

How about if you aren’t required to consolidate for PSLF? Let’s consider whether consolidating Direct loans is beneficial, even if you’re already on income-driven repayment and qualify for the program.

What are the pros and cons of PSLF consolidation?

A Direct Consolidation Loan has many benefits, such as extending your repayment term by up to 30 years. If you have parent PLUS, FFEL or Perkins loans, consolidating will allow you to access income-driven repayment plans and be eligible for PSLF.

However, consolidating for PSLF isn’t the best move for every borrower. If you have various Direct loans and you’ve already made qualifying payments toward PSLF, consolidating can reset the forgiveness clock, causing you to lose credit for those payments.

For example, if you’ve made five years of payments before consolidating your federal student loans, those payments might not count after consolidation. You can still pursue PSLF, but the count begins only when you consolidate your debt. In this scenario, it’s better to avoid consolidating to retain your current progress toward relief.

Be aware that consolidating can also result in a higher interest rate, especially if you lose any current interest rate discounts or other such benefits. And while extending your loan repayment term could help during financial hardship, you will likely pay more interest over time.

Should I consolidate my student loans for PSLF?

Deciding if you should consolidate your loans can be overwhelming and confusing. Overall, a PSLF consolidation could be worth it if any of the following situations apply to you:

• You’re still in your grace period or early on in repayment. If you haven’t made payments yet or have just started, you can consolidate your loans without losing a bunch of qualifying payments for PSLF.
• You want access to IDR plans. Some federal loans, such as parent PLUS, are only eligible for IDR plans if you consolidate them first. An IDR plan could reduce your monthly bill and leave you with just one payment to manage. Enroll in IDR immediately after leaving school (or your student loan grace period) to ensure you start the path to forgiveness as early as possible.
• You need a lower monthly payment. When you take out a Direct Consolidation loan, you can choose a new repayment period of up to 30 years. A longer student loan repayment plan can dramatically reduce your payments and make your loans more manageable. But if a lower payment is your priority, you’ll also want to choose an income-driven plan, so that you can get the remaining balance forgiven after 20 or 25 years.

Other potential reasons to consolidate include ditching a variable rate on an older federal student loan or rehabilitating a student loan default. If you still don’t know if consolidation is the best move for your situation, contact your student loan servicer to discuss options.

What are some alternatives to PSLF consolidation?

If you don’t qualify for PSLF, other types of student loan forgiveness or an income-driven repayment (IDR) plan, then student loan refinancing is another option to manage your payments.

With this strategy, you consolidate some or all of your loans — federal, private or both — into a new loan with a private lender. You need good or excellent credit (or a creditworthy cosigner) and solid income to qualify.

Beware: Once you refinance federal loans, you can no longer apply for PSLF or IDR plans. On the other hand, if you have high-interest private loans, then refinancing can be an excellent option for saving money and might help you pay off student loans faster.

Despite its many benefits, it’s worth considering the pros and cons of refinancing before you proceed.