Written By Travis Hornsby, CFA®, CFP®
The new weighted average consolidation rules for student loans are completely different from those before or during the pandemic. These new rules are in effect as of July 2024.
While the new consolidation rules are an improvement from the past, they're nowhere near as generous as the pandemic-era rules that applied maximum credit no matter what loans you put into consolidation.
We’ll explain what the weighted average consolidation rules mean and whether you should consolidate under these new regulations.
Consolidation used to reset your student loan forgiveness clock. No longer.
Before the pandemic, consolidation would wipe away all credit toward forgiveness. That’s because a consolidated loan is a brand new loan, legally.
The old rules didn't allow for consideration of prior payments on a new loan.
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Ultra-generous consolidation rules from the pandemic also expire
Temporary rules initiated by President Biden under the IDR account adjustment made consolidating way more attractive.
Loan servicers would look back prior to consolidation, find the loan with the longest repayment history and apply that history to the new consolidation loan.
During the IDR account adjustment (i.e. IDR waiver), consolidating your loans was a no-brainer.
The Department of Education would look for the loan with the greatest amount of payment credit, and apply that credit on the entire consolidation loan — even if that loan was only $3,000 and you had $300,000 of debt with no payment credit.
The IDR waiver expires on April 30, 2024.
Starting in July 2024, the new weighted average consolidation rules apply.
How the weighted average consolidation rules work
President Biden asked a committee to come up with new regulations for student loans in 2023.
The committee put into place the weighted average rule for consolidations, and because of the regulatory calendar, it doesn't go into effect until July 2024.
Pretend you’re working toward 25-year forgiveness with the Saving on a Valuable Education (SAVE) plan, and have the following two loans:
- $50,000 Stafford Loan with 10 years credit toward 25-year SAVE forgiveness.
- $50,000 Grad PLUS Loans with 0 years credit toward 25-year SAVE forgiveness.
Each loan represents 50% of the total debt. You’d take 10 years times 50%, and 0 years times 50%. The result is five years of forgiveness credit.
The new consolidation would therefore have five years of forgiveness credit toward the 25 years required under the SAVE plan before receiving forgiveness (if you have student debt from grad school and aren't pursuing Public Service Loan Forgiveness [PSLF]).
Another weighted average consolidation student loan example
Let’s say you took out some small loans from undergrad and then went back to grad school. You’re pursuing income-driven repayment (IDR). Here’s your hypothetical debt amount:
- $40,000 Stafford from grad school with five years IDR credit (38% of debt).
- $60,000 Grad PLUS from grad school with five years IDR credit (59% of debt).
- $3,000 Stafford from undergrad with 15 years IDR credit (3% of debt).
The formula for payment credit post consolidation is:
0.38 * 5 + 0.59 * 5 + 0.03 * 15 = 5.3 years
Under the IDR waiver, the consolidation would’ve had 15 years toward forgiveness instead of 5.3 years.
It’s clear that these new weighted average rules are far less generous.
Can you consolidate a consolidation loan you created during the pandemic?
Let’s say you consolidated a loan under the temporary IDR waiver rules and received way more credit on the new consolidation than you normally would have.
Now pretend you go back to school and take out more debt either now or later. Can you consolidate without losing all the extra credit you got during the IDR waiver?
Yes, you can.
CAVEAT: The new consolidation loan would be added together with other debt in a consolidation, and the weighted average rules would apply to the new consolidation.
So if you have a big consolidation loan with 15 years of credit and add it to loans with 0 credit, the final payment count on the new consolidation will simply use the weighted average formula.
You wouldn't lose credit for the consolidation that already happened even if you consolidate that loan with other loans after July 2024.
How does the weighted average consolidation rule apply to PSLF?
Under new PSLF regulations, weighted average consolidation rules also apply to borrowers pursuing PSLF.
If you consolidate a loan with 60 months of credit with a loan of the same size with zero months of credit after July 2024, the new consolidation loan would have 30 months of PSLF credit.
Could the new consolidation loan rules be changed or reversed?
Ultimately, yes. These rules were created through executive action, so if a future administration wanted to return to the old regime, where consolidation wiped away all forgiveness credit, that could happen.
It’s highly unlikely that any potential reversal would apply to loans already consolidated, though. Generally speaking, reversals or reforms that would hurt borrowers only apply to actions borrowers have not taken yet.
Should you consolidate now?
As with many things in life, consolidating or not depends on how many loans you have and how much payment credit each of those loans has toward forgiveness.
If consolidating could eliminate years of IDR payments when you’re earning more at the end of your career, it could be incredibly beneficial.
But consolidating also might take away the 10-year Standard plan and the payment caps that come with it.
If you need help figuring out how the weighted average consolidation rules affect you, our student loan experts can help.
Not sure what to do with your student loans?
Take our 11 question quiz to get a personalized recommendation for 2024 on whether you should pursue PSLF, Biden’s New IDR plan, or refinancing (including the one lender we think could give you the best rate).
