PSLF Consolidation: How New Weighted Average Rules Affect You

• New PSLF consolidation rules take effect in July 2024.

• Weighted average formula determines qualifying payments for consolidated loans.

• Consolidation no longer resets PSLF progress to zero.

Starting July 2024, the Public Service Loan Forgiveness program introduces new weighted average consolidation rules. These rules change how qualifying payment counts are determined for consolidated federal student loans.

Under this system, borrowers consolidating Direct Loans will receive partial credit for previous qualifying payments, based on the relative balances of the consolidated loans.

This change significantly impacts PSLF strategies, offering a middle ground between pre-waiver rules and the limited PSLF waiver.

For example, if you consolidate two loans:

• Loan 1: $50,000 balance, 50 qualifying payments

• Loan 2: $25,000 balance, 100 qualifying payments

• New Direct Consolidation Loan: 67 qualifying payments ([50 x $50,000 + 100 x $25,000] / $75,000)

While more favorable than pre-waiver rules, these new rules are not as generous as the limited PSLF waiver. Borrowers should carefully consider the potential benefits and drawbacks of consolidating before or after July 2024.

In this article, we’ll explain the new rules, their impact on PSLF progress, and offer guidance on factors to consider when deciding whether to consolidate your loans for PSLF.

Related: How the PSLF Buyback Program Works

Before diving into the new consolidation rules, let’s recap the basic requirements for Public Service Loan Forgiveness. To qualify for PSLF, you must meet the following criteria:

1. Employment: Work full-time for a qualifying government organization or non-profit.

2. Loan Type: Have Direct Loans (or consolidate FFEL or Perkins Loans into a Direct Consolidation Loan).

3. Repayment: Make 120 qualifying payments under an income-driven repayment plan or the 10-year Standard Repayment Plan.

4. Certification: Submit the PSLF form to certify employment and payments.

Important Changes to PSLF Management:

Starting May 1, 2024, the PSLF program will undergo significant administrative changes:

• New Management: MOHELA will no longer be the loan servicer for the PSLF Program. The U.S. Department of Education is taking over the program starting July 1, 2024. Moving forward borrowers will submit PSLF forms, track progress, and receive support directly through StudentAid.gov.

• Processing Pause: From May 1 to July 2024, there will be a pause in processing PSLF forms. Borrowers can continue to submit forms during this time, but they will be held until processing resumes in July.

• Submission Guidance: To ensure a smooth transition, use the PSLF Help Tool when submitting forms and avoid resubmitting forms during the processing pause.

Related: Are Parent PLUS Loans Eligible for PSLF?

What it is: A new method for calculating PSLF qualifying payments when consolidating federal student loans.

How it works: The weighted average is determined by:

1. Multiplying each loan’s qualifying payments by its balance

2. Summing these values for all consolidated loans

3. Dividing by the total combined balance

Who qualifies: Borrowers consolidating Direct Loans after July 2024 for PSLF.

How to apply: Consolidate your loans through StudentAid.gov after July 2024.

Example:

• Loan A: $20,000 balance, 50 qualifying payments

• Loan B: $30,000 balance, 75 qualifying payments

• Loan C: $10,000 balance, 100 qualifying payments

Calculation: (20,000 × 50 + 30,000 × 75 + 10,000 × 100) ÷ (20,000 + 30,000 + 10,000) = 70.83

Result: New Direct Consolidation Loan would have 71 qualifying payments (rounded up).

Deadline: These rules take effect in July 2024. There’s no specific deadline to apply, but timing can impact your PSLF progress.

Related: PSLF Refund Overpayment

The new weighted average consolidation rules represent a significant change from previous PSLF policies. Before these changes, consolidating loans would reset your PSLF qualifying payment count to zero, often discouraging borrowers from consolidating.

During the Limited PSLF Waiver (October 2021 – October 2022), consolidation granted borrowers the highest number of qualifying payments from their original loans.

Later, the Department of Education implemented the one-time account adjustment program. This opportunity gave borrowers PSLF and IDR Plan Forgiveness credit for their time spent in any repayment plan and qualifying forbearance and deferment periods, except for grace periods and in school deferments.

That forgiveness program ended June 30, 2024.

Starting July 2024, the department will implement new rules that strike a balance between these approaches. While not as generous as the limited waiver, they ensure you don’t lose all your progress toward PSLF when consolidating.

For example, if you consolidate three loans with different balances and qualifying payment counts, your new Direct Consolidation Loan would have a weighted average number of qualifying payments based on the formula.

This approach ensures that borrowers retain a significant portion of their progress towards PSLF, making consolidation a more viable option for many pursuing loan forgiveness.

Related: PSLF Updates

Only payments made on Direct Loans prior to consolidation that meet certain criteria will count as qualifying payments in the weighted average calculation. These criteria include:

• Payments made while working full-time for a qualifying employer

• Payments made under a qualifying repayment plan

• Payments made for the full amount due and on time

• Periods of qualifying deferment or forbearance

The weighted average consolidation rules apply to all Direct Loans, including Direct PLUS Loans made to parent borrowers.

If you consolidate a parent PLUS loan with other Direct Loans, the resulting Direct Consolidation Loan will have a weighted average number of qualifying payments based on the loans consolidated.

Deciding whether to consolidate your loans for PSLF requires careful consideration of several factors. While the new weighted average rules make consolidation more attractive for many borrowers, it’s not always the best choice for everyone. Here are key factors to consider:

1. Simplification of repayment: Consolidation combines multiple loans into a single Direct Consolidation Loan, which can make managing your loans easier.

2. Potential extension of repayment term: Consolidation may extend your repayment term, potentially lowering your monthly payments but increasing the total amount you pay over time.

3. Loss of certain borrower benefits: Some loans, like Perkins Loans, have unique benefits that may be lost upon consolidation.

4. Timing of the new rules: Consider whether it’s more advantageous to consolidate before or after July 2024, based on your current loans and payment history.

5. Current loan balances and qualifying payment counts: Calculate how consolidation would affect your overall progress toward PSLF based on your specific situation.

6. Employment situation: If you’re close to making 120 qualifying payments on some loans but have newer loans with fewer payments, you might want to delay consolidation.

To make an informed decision, use the PSLF Help Tool to determine your current qualifying payment counts, then calculate the weighted average of your qualifying payments based on your loan balances.

Evaluate the potential benefits and drawbacks for your specific situation, considering both short-term and long-term implications.

The new PSLF weighted average consolidation rules, effective July 2024, significantly impact loan forgiveness strategies. While offering a middle ground between previous policies, the decision to consolidate remains complex and individual. Carefully consider your loan balances, payment histories, and career plans.

Use the PSLF Help Tool to assess your situation, but remember that personalized advice is crucial. Our expert student loan advisors can help you navigate these changes and optimize your PSLF journey.

Don’t let confusion delay your path to loan forgiveness – book a 1:1 consultation today to take control of your student debt.