Updated for 2023 graduating veterinarians:
There are some new changes and proposals to be aware of as you enter loan repayment.
Here are some common questions about using a Federal Direct Consolidation Loan that we tackled live during the most recent New Veterinary Graduate Student Loan Playbook Webinar.
To consolidate vs not consolidate?
Absolutely start a Federal Direct Consolidation Loan as soon as your loans allow after graduation if:
- you are entering a post-grad academic program before the end of your grace
- you are starting a PSLF eligible job before the end of your grace period
- you are likely to reach any type of student loan forgiveness
- you have loans from before veterinary school that have logged some repayment time
- you have any non-Direct Loan types including: Health Professions Student Loans, Loans for Disadvantaged Students, Perkins Loans, or Federal Family Education Loans.
- you have little or no unpaid interest balance
What are the benefits of ending the post-graduation grace period?
- Getting your repayment plan started sooner means reaching the end of student loan repayment faster. Most veterinary graduates will start with student loan balances that exceed their incomes, a situation that highly favors using income-driven repayment. The sooner you get started in income-driven repayment, the sooner you’ll reach forgiveness. The sooner you reach forgiveness (or end repayment), the less you’ll pay. Your grace period does not count towards the time needed to reach forgiveness, even if you choose to make payments. Get the forgiveness clock started as soon as possible using a Federal Direct Consolidation loan, ending the remainder of your grace period, and applying for an income-driven repayment plan.
- You can have a $0/mo payment due for the first twelve months of repayment. If you start your Federal Direct Consolidation loan soon after graduation, you can end the remainder of your grace period (select the “Do Not Delay Processing” option) and choose an income-driven repayment plan. If you have filed a tax return recently or not yet start your job, you can secure a $0/mo payment for the first twelve months of income-driven repayment. If you are going to reach forgiveness under income-driven repayment, having a $0/mo payment will not only decrease your total repayment costs but allow you to get a head start on your financial wellness plan.
- Consolidation allows you to choose your loan servicer. Unfortunately, all of the loan servicers are terrible at administering the income-driven repayment plans. Use this unique opportunity to choose Mohela as your loan servicer. Not because they are good, but because they are the official monitor of Public Service Loan Forgiveness (PSLF) progress. Since PSLF requires you to use income-driven repayment to satisfy the requirements, Mohela generally has more experience with income-driven repayment plans. Also, if you end up working towards PSLF, your loans will get moved to Mohela. Move them during the consolidation process as you’re getting started in repayment to help minimize mistakes that often happen with loan servicer transitions during repayment.
How do we know if our student loans are able to be consolidated?
Your Direct Loans, Health Professions Student Loans, Perkins Loans, Loans for Disadvantaged Student, or FFEL program loans need to be in their grace period, deferment, or repayment in order to include them in a Federal Direct Consolidation Loan.
The loans that usually hold up your Direct Consolidation are Direct Unsubsidized Loans and Health Professions Student Loans. Once these loans enter their grace period, you can include them in your post-graduation Direct Consolidation loan.
Can you consolidate after the grace period?
Yes. But, the timing of your Federal Direct Consolidation is important, especially for the 2023 graduating class.
- You will start to accrue interest on all of your unsubsidized loans once the pandemic forbearance benefits end. That is likely to be after August 30, 2023, which is still during the grace period for most veterinary school graduates. If you wait until after the pandemic forbearance period to consolidate, the increased unpaid interest balance will be added to your principal (capitalized) resulting in a higher starting repayment balance. You are charged interest on your principal — the higher your principal, the more interest you will be charged during repayment.
- The Direct Consolidation Loan takes 30-60 days to process. Once processed your first payment will be due 30 days after that. If you wait until after your grace period, there is nearly 9 months of time that you are not in repayment, thus not making qualifying payments towards forgiveness. Better to get the forgiveness clock ticking as soon as possible, just in case you may benefit from student loan forgiveness.
Can you consolidate and waive your grace period if you’re planning to do Public Service Loan Forgiveness (PSLF)?
The sooner you can get most or all of your federal student loans consolidated into a Direct Consolidation Loan, the sooner you can officially start making payments using an income-driven repayment plan, which are 2 of the 3 primary requirements for working towards PSLF. And if you can get the $0/mo payment due for the first 12 months of repayment, you’ll have more of your loans forgiven when you reach PSLF. Zero dollar minimum payments using an income-driven plan count towards forgiveness. Your grace period and deferment do not.
My Perkins Loans, Health Professions Student Loan, and Loans for Disadvantaged Students aren’t listed as eligible under income-driven repayment. Can I consolidate them in order to pay them using PAYE, REPAYE, or IBR?
Can you do Federal Direct Consolidation once you have started payments on an income-driven repayment plan?
You can. However, if you are already in repayment, you should be extremely careful using a Direct Consolidation Loan. Once again, timing for your Federal Direct Consolidation Loan is important.
Since April 2022, the Department of Education opened a one-time forgiveness count adjustment. This allows any/all repayment time and certain deferment/forbearance time to be eligible for forgiveness. Even loans that are included in a Direct Consolidaiton Loan will have their prior repayment time counted as forgiveness-eligible. This opportunity is open through 2023.
The one-time forgiveness count adjustment is the reason why it makes sense for any new graduate to consolidate older loans with any qualifying repayment time with their veterinary school loans. Doing so provides a chance that the oldest loans with the most repayment time will transfer that time as qualifying forgiveness time to your new consolidation loan. If you can start repayment on your consolidation loan with some forgiveness credit already logged, income-driven repayment becomes even more beneficial because you can reach forgiveness even faster.