TLDR
StudentAid.gov is currently recommending many borrowers consolidate their loans because some loans are temporarily showing as “ineligible” due to grace period or in school statuses. In many cases, the loans themselves are already eligible and may not need consolidation at all.
The concern is that under the new rules, any new loans issued after July 1st, including consolidation loans, lose access to IBR and would likely only have RAP available moving forward.
Realistically, most consolidations submitted now may not fully process before the July 1st deadline, which could unintentionally limit future repayment options and start payment sooner than necessary for unaware borrowers.
Why We Are Concerned About Federal Loan Consolidations Right Now
One of the biggest concerns we are seeing right now with graduating medical students, dental students, and veterinary students is the automated recommendation on StudentAid.gov telling borrowers they should consolidate their federal student loans because some of their loans are showing as “ineligible.”
In many cases, the loans are not actually ineligible at all.
Most of the time, the issue is simply that some loans are still temporarily showing statuses like:
- Grace period
- In school deferment
- Recently graduated but not fully updated in the federal system yet
Unfortunately, StudentAid.gov is often interpreting those temporary statuses as a reason to recommend consolidation, which is creating a very concerning situation for borrowers who may not fully understand the long term consequences of consolidating right now.
Why the July 1st Deadline Matters So Much
The timing here is extremely important.
Under the new federal repayment rules, borrowers who receive any new federal loans after July 1st, including Direct Consolidation Loans, lose access to Income Based Repayment (IBR), could be forced to begin repayment earlier than if they simply waited through their grace period, and in some cases may even lose existing PSLF credit on older loans included in the consolidation.
That is a major shift since RAP would be their only remaining income-driven repayment plan available moving forward.
The problem is that a federal consolidation creates a brand new federal loan. So even if your original loans were borrowed years ago, if the consolidation itself is processed after July 1st, you may now fall under the new repayment rules tied to that newly created consolidation loan.
Based on the timelines provided for Parent PLUS borrowers who needed their consolidations completed before July 1st, borrowers were encouraged to have those applications submitted prior to April 1st to help ensure processing was completed in time. Based on that, at this point, many consolidations submitted now realistically will not fully process before the July 1st deadline.
That is why we are increasingly concerned about unaware borrowers blindly following automated recommendations from StudentAid.gov without fully understanding what they may be giving up long term.
Why Losing Access to IBR Could Matter
For some borrowers, losing access to IBR may not be a huge issue.
But for others, especially borrowers with very high debt relative to income like many veterinarians, it could significantly impact long term repayment strategy.
One of the major differences is that IBR includes:
- A capped payment structure (great for high income folks going for PSLF)
- Potential forgiveness after 20 or 25 years depending on when the loans were borrowed
RAP, on the other hand:
- Does not currently have a payment cap
- Extends forgiveness out to a 30 year forgiveness timeline
That distinction matters quite a bit when comparing repayment options side by side over the course of a career.
RAP Is Not Necessarily a Bad Plan
To be clear, RAP absolutely has some meaningful advantages and may very well be a repayment plan we recommend in many situations.
But there is a big difference between:
- Intentionally choosing RAP as part of a well thought out repayment strategy
and - Accidentally limiting your future repayment options because of a faulty automated recommendation tied to a temporary loan status on StudentAid.gov
That is the piece that does not sit well with me right now.
Especially because many borrowers may never have needed to consolidate in the first place.