Consolidation Deep Dive

Stanley Tate
October 27, 2023

Hey ,

I’m back again with another deep dive.

Last time, you all voted to learn more about Consolidation.

So by the end of this email, you’ll know how to consolidate a loan, the benefits and risks that come with it, and (hopefully) whether or not it’s for you.

Let’s get into it.

In this deep dive, we’ll cover:

✨ Introducing: Consolidation
✌️ Two ways to consolidate
⚖️ The benefits + risks of Consolidation
🌟 My client’s Consolidation success story
🔢 How to do it: step by step
❤️‍🩹 Reversing the damage of Joint Spousal Consolidation
🔐 Can you consolidate private loans? (Spoiler, nope)
🎲 A couple of quizzes
📚Consolidation resources

✨ Introducing: Consolidation

If your latest loan bill has been keeping you up at night, you’ve probably stayed up Googling “how to get rid of my loans”.

And chances are, Consolidation came up.

For federal borrowers, Consolidation can be a lifeline. It can help you out of default, unlock affordable repayment plans and forgiveness options, and grant you the relief of managing one single loan—instead of having a bunch of them breathing down your neck.

There are two types of Consolidation:

1️⃣ Single Consolidation: helping federal borrowers manage debt
Single Consolidation lets you combine multiple federal student loans into a new Federal Direct Consolidation Loan.
Read all about it
2️⃣ Double Consolidation: a loophole for Parent PLUS borrowers
The Double Consolidation loophole is a financial strategy tailored for Parent PLUS Loan borrowers looking to significantly reduce their monthly loan payments. This strategy leverages a two-step Consolidation process with different loan servicers, making you eligible for more affordable repayment plans.
Read all about it

👍 Benefits of Consolidation

You can qualify for forgiveness programs
Under normal circumstances, FFEL and Federal Perkins loans shouldn’t qualify for Public Service Loan Forgiveness. But by bundling them into a Direct Consolidation Loan, we can make them eligible.
You can lower your monthly payments
Not all loans qualify for Income-Driven Repayment plans. Consolidating your ineligible loans can grant you access to the most affordable repayment plan in history: SAVE.
It can get you out of default
Consolidation can get your student loan debt out of default in about 2-3 months. The new Consolidation Loan pays off the principal balance, interest, and collection fees owed on the loans included in the Consolidation. Aside from Consolidation, another great way to get out of default is through the Fresh Start Program.

👎 Risks of Consolidation

You could pay more interest in the long-term
There are three reasons for this. Firstly, Consolidation extends your loan term, meaning more time for interest to accrue. Secondly, any outstanding interest on your consolidated loans becomes part of your principle balance, and starts earning interest itself. And finally, your new interest rate will be the weighted average of all of the interest rates rounded up a bit.
You could lose credit towards loan forgiveness
Consolidating your current loans into a single loan would usually cause you to lose credit for any qualifying payments made toward income-driven repayment plan forgiveness or Public Service Loan Forgiveness. However, until the end of 2023, the department is running the Payment Count Adjustment, which gives you retroactive credit towards forgiveness.

🌟 Success stories: When Consolidation works

My client Lisa consolidated her way to financial freedom. Hear her story.

🔢 How to consolidate: Step-by-step

1️⃣ Single Consolidation

The process of applying for student loan Consolidation is reasonably straightforward. Just follow these steps:

Begin consolidating federal student loans for free by heading to studentaid.gov.
Use your Federal Student Aid ID to log in.
To apply online, click Manage Loans —> Consolidate My Loans —> Start. You can also submit a paper application to a loan servicer of your choosing by mail or fax. If your student loans are in default, just use studentaid.gov.

1️⃣ Double Consolidation

Double Consolidation takes about 12-16 weeks. Here’s how it goes:

Fill out this paper application to turn your Parent PLUS Loans into Direct Consolidation Plus Loans.
Make sure you split your loans into two groups, and submit them to two different servicers.
Once they receive and process your application, you should then have two separate Direct Consolidation Plus Loans.
Enter the “double” part. Now, you fill in the same paper application to turn the two Direct Consolidation Plus Loans into one loan.
At this point, your loans lose the “plus” stitch, which opens up a load of repayment options that weren’t available to you before, including SAVE.

These steps might differ slightly depending on whether you’re consolidating Parent PLUS Loans only, or a whole bunch of federal loans. Mass.gov created these detailed step-by-steps for both scenarios.

Consolidation can be tricky, so I’d always recommend working with someone who knows what they’re doing. You can talk to me, or find another attorney to help.

❤️‍🩹 Reversing the damage of Joint Spousal Consolidation

Is your financial future tied to someone you know longer share your life with? If so, you’re not alone. This is the reality for 776 people who took out these loans between 1993-2006. The good news is, there is a way to escape Spousal Consolidation Loans—through the Joint Consolidation Loan Separation Act.

⏸️ Let’s take a breather

Life’s wild right now. I’m home for a couple of days before I head up to Chicago to join a panel with the Education Department. This is my second to last speaking gig this year. After that, I’m taking all of 2024 off from speaking. I plan to focus on continuing to build this business to offer you more (and better) services. Aside from that…

📺 I’m watching: Bodies on Netflix. It’s this limited series about time travel, murder, power, and so on. Plus, it’s British. I love British shows. It all started with Sherlock and then Top Boy.
🥘I’m cooking: this white bean sausage skillet. I made it when I returned from New Orleans. Absolutely delicious.
🥃I’m drinking: this Sazerac cocktail. When I was in New Orleans, the bartender made one with Sazerac de Forge. I loved it so much that I brought back a bottle.

Let me know what you’re up to! Drop a recipe, recommendation or life update in a feedback form at the end.

🔐What about private loans?

Bad news—you can’t consolidate private loans.

Good news—there are other options.

Here’s what you can do:

Refinance them
Refinancing involves taking out a new loan with better terms to pay off your existing loans. Be cautious, though, as you may lose benefits associated with your original loans.
Apply for deferment or forbearance
Temporarily put loan payments on hold due to financial hardship or going back to school. Keep in mind that interest may still accrue and may even capitalize, which means you may owe more money over the life of the loan.
Make interest-only payments
Pay only the interest for a set period, usually at the start of your repayment term. This will result in a lower monthly payment, but remember, the principal amount will still need to be paid off eventually.
Make interest-rate reduction payments
Request temporary interest rate reductions to help manage loan payments. Check with your lender to see if this option is available.
Negotiate a settlement
To negotiate a settlement with your private loan lender, first you’ve got to default on them. Which can be scary, but the payoff could be worth it.
File for student loan bankruptcy
This is not the most appealing option, I know. But student loan bankruptcy has helped so many of my clients free themselves from debt and start living their lives again.

Learn more about reducing or writing off private loans here.

Need help managing your private loans?

🎲Quiz: Should I consolidate my loans?

👉 Take the quiz 👈

🎤Your questions asked

“Do I really have to take out another loan to access SAVE? I don’t want to go back into education.”

If you’ve already consolidated and don’t have anything to combine your existing loan with—yes. That’s your only option.

“How do I calculate the number of payments that the government will credit towards my 25 year forgiveness threshold?”

Luckily, my team built a tool for that. It’s totally free—you just have to refer one person to this newsletter to get access. It gives you a beautiful timeline showing how long you spent in repayment, deferment, and forbearance. Plus loads of other stuff. It’s truly the easiest way to calculate this.

“All six of my Parent PLUS loans are with Nelnet. When I double consolidate, should I avoid Nelnet and choose another servicer?

No, it doesn’t matter. If you’re worried about Nelnet knowing you’re consolidating Parent PLUS Loans, do not worry. They already know and you don’t need to hide it.

“Do you know if doing the Double Consolidation loophole will cause any problems for me getting Parent PLUS Loans in the future?”

Nope. You’re good.

“I have heard just this week that Double Consolidation is no longer happening due to being identified as PLUS loans. Have you heard this?”

I heard this, but it’s wrong. The Double Consolidation loophole is not closed—you just can’t get SAVE through studentaid.gov. You can still apply through your servicers directly. So if you’re doing it online, it might look like you’re being blocked but you’re not—don’t worry.

“I want to confirm with you if it is really OK to consolidate my loans. Earlier I had read somewhere that it is not a good idea to consolidate loans as it makes the borrower ineligible for debt relief.”

I can’t tell you “yes” without looking at your loans. I can do that on a call. What I can say is that everyone should look for reasons not to consolidate instead of reasons to consolidate. If your servicer is telling you you can access a better plan by consolidating, that makes sense to me. It’s worth exploring.

📚 Resources

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If you made it all this way, thank you. I appreciate you 🙏

Look over all the resources I shared, and decide whether or not Consolidation is right for you. And —if you ever want my help, I’m right here.

Take care,

Tate

Answer:

1) Refinancing