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Missed the last student loan forgiveness deadline? There may still be other options for relief

Two of the most popular debt cancellation avenues are the Public Service Loan Forgiveness program, which leads to a debt jubilee after a decade of payments for qualifying workers, and the income-driven repayment plans.

Those plans, which cap a borrowers’ monthly bill at a share of their discretionary income, lead to debt erasure after 10 to 25 years of payments. There are currently four different plans, each with different rules.

But there are also “over 100 other forgiveness programs out there to explore,” said Mayotte in an earlier interview with CNBC.

“Many are offered by states looking to encourage certain types of employment, such as health care and public defenders,” she said.

Mayotte’s website, FreeStudentLoanAdvice.org, has a database of these programs, she said.

Have student loans? Want forgiveness? An important deadline is coming up.

A big deadline is coming up for people with federal student loans to be eligible for forgiveness.

Borrowers with certain kinds of federal loans need to consolidate — effectively, refinance with the federal government — by Tuesday, April 30, to qualify for debt cancellation through two existing programs, Income-Driven Repayment and Public Service Loan Forgiveness.

The Department of Education is currently doing what it calls a one-time account adjustment, reviewing every single one of the more than 40 million federal student loan accounts and giving borrowers credit for years of past payments that previously did not count toward forgiveness.

“Essentially what it’s saying is, ‘Listen, we don’t think that the industry as a whole did a good job communicating to borrowers about the existence of the Income-Driven plans,’” said Betsy Mayotte, who runs the nonprofit Institute of Student Loan Advisors.

FFELP student loan forgiveness: Routes to relief, plus alternatives if you don’t qualify

Whether you should consolidate FFELP loans comes down to your specific situation and plans for loan forgiveness.

“Some FFELP borrowers should absolutely consolidate into the Direct Loan program to take advantage of things such as PSLF and … the one-time account adjustment,” said Betsy Mayotte, president and founder of The Institute of Student Loan Advisors, a donor-based organization.

Thanks to this adjustment, you don’t have to worry about losing credit for past loan payments — as long as you apply by April 30, 2024. After this date, however, consolidating FFELP loans will mean resetting the clock on your progress toward loan forgiveness.

Delays in federal financial aid form leaves students in limbo during college acceptance season

To understand what’s going on, we need to go back to 2020, when Congress ordered an update to what used to be considered a notoriously difficult and complex FAFSA form, hoping to expand federal student aid to more low income students. The new application now has only 50 questions, compared to the 108 questions on the old form. It’s also designed to make more generous calculations for financial aid eligibility.

But the revamp meant the new applications weren’t available until Dec. 31 last year, three months later than usual. And it wasn’t until last Sunday that colleges first began receiving the federal data they need to put together these financial aid packages, which has left many students and their families frustrated, confused and, by some accounts, giving up hope altogether.

In addition to the delayed form, many families experienced difficulties with the new system.

“Unfortunately, the result of that is we’re seeing a significant decline in the number of families filling out the FAFSA,” Mayotte said. “In fact, it’s estimated that by the time this all shakes out, FAFSA submissions might be down by as much as 30%.

I’m very confident that the errors that we’re seeing are going to shake out, and in the end, these families will be okay. But I do worry, and I think the industry as a whole is worried about that 30% that may, as you put it, just throw up their hands for this year.”

In response to these problems, Mayotte said colleges and universities are being encouraged to extend their deadlines beyond May 1 to give students more time to figure out financial aid.

Do This by April 30 if You Want Loan Forgiveness This Year

In the past, consolidation could reset your payment counts to zero for IDR and PSLF forgiveness. That’s no longer always the case.

If you meet the April 30 consolidation deadline, your consolidation loan will get credit for the oldest underlying loan. For example, if you’ve been repaying a commercially held FFELP loan for 18 years, and a direct loan for five years, your new consolidation loan would get 18 years of IDR forgiveness credit after the adjustment.

“The most common example is somebody who goes to undergraduate, gets loans for undergraduate, then they take a break and go into repayment. And then years later, they go back for their graduate degree and they take out new loans,” says Betsy Mayotte, president and founder of The Institute of Student Loan Advisors.