Student loan forgiveness deadline is June 30. Here’s what borrowers need to know

Personal finance

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Student loan borrowers have until the end of June to meet a deadline that could lead to quicker debt forgiveness.

Some could even see their debt cleared immediately.

Those with several student loans who apply for so-called loan consolidation by June 30 — a move that packages multiple federal student loans into a single new loan — may benefit from the temporary policy.

Here’s what borrowers should know.

Combining loans can lead to earlier relief

Many student loan borrowers have multiple education loans, either because they borrowed repeatedly throughout college or returned to school at some point.

If these borrowers are enrolled in an income-driven repayment plan, it can mean they’re also on multiple different timelines to forgiveness. (Depending on the plan, borrowers can get any remaining debt excused after 10, 20 or 25 years.)

Under the temporary policy instituted by the Biden administration, borrowers who consolidate will earn credit toward all their loans based on the one they have been paying off the longest. They will also earn credit for certain periods that previously didn’t count, including some months spent in deferments or forbearances.

“This will ensure folks get the maximum number of months of credit towards student debt cancellation,” Jane Fox, the chapter chair of the Legal Aid Society’s union, previously said in an interview with CNBC.

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Consolidating while this policy is in place could be a good deal for many, experts say.

For example, say a borrower graduated from college in 2004, took out more loans for a graduate degree in 2018, and is now in repayment under an income-driven plan with a 20-year timeline to forgiveness. Consolidating before July 1 could allow them to quickly qualify for forgiveness on all those loans, experts say, even though they would normally need to wait at least another 14 years for full relief.

“Many borrowers will get complete debt cancellation, particularly those who have been paying for over twenty years,” Fox said.

Usually, a student loan consolidation restarts a borrower’s forgiveness timeline to zero, making it a terrible move for those working toward cancellation.

What to know about the consolidation process

All federal student loans — including Federal Family Education Loans, Parent Plus loans and Perkins Loans — are eligible for consolidation, said higher education expert Mark Kantrowitz, in a previous interview with CNBC.

You can apply for a Direct Consolidation Loan at StudentAid.gov or with your loan servicer. Experts say the process should take under 15 minutes.

Some borrowers who took out small amounts may even be eligible for cancellation after 10 years’ worth of payments if they enroll in the new income-driven repayment option, known as the Saving on a Valuable Education, or SAVE, plan.

Consolidating your loans shouldn’t increase your monthly payment, since your bill under an income-driven repayment plan is typically based on your earnings and not your total debt, Kantrowitz said.

The new interest rate will be a weighted average of the rates across your loans.

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