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Dear Dr. Debt is an advice column about student-debt management in the veterinary community. It is adapted from Veterinary Information Network and VIN Foundation message boards where veterinarians and veterinary students ask questions and get answers to help them approach borrowing and repayment strategically.

Over the years, thousands of these online conversations have enabled VIN members to learn the good, bad and ugly aspects of student loans. With Dear Dr. Debt, the VIN News Service extends the conversation to the wider veterinary community, featuring advice from student debt expert Dr. Tony Bartels.

Dear Tony,

I am a 2012 graduate who has put off consolidating my federal student loan debt, and I think I have only until the end of 2023 to do it. Is that accurate?

I have other questions, too. But first, here is a breakdown of my finances: 

Types of federal student loan debt: Direct Loans, Federal Family Education Loans (FFEL), Perkins loans, Health Profession Student Loan 

Federal student loan principal: $310,578 

Unpaid interest balance: $63,558  

Weighted average student loan interest rate: 7.07% 

Repayment plan or strategy: Income-Based Repayment for 10 years

Current anticipated monthly payment: $880

Do you make payments above the minimum monthly payment to your U.S. federal student loans? No

Emergency fund: six months of expenses 

Personal debt: $320,000 home mortgage; $45,000 auto loan

Pay structure: salary only

Current annual income: $155,000  

Tax status: married, filing separately

Recent adjusted gross income: $133,345

Family size: spouse and two dependents 

I believe my loans serviced by Nelnet are eligible for the 2009 version of Income-Based Repayment (IBR) or the new Saving on a Valuable Education (SAVE) plan that launched this fall. I think my FFELs serviced by American Education Services (AES) are eligible only for IBR 2009. Is there a benefit to consolidating just the AES FFEL loans into a federal Direct Consolidation Loan?

Also, could there be better options than consolidation? Here are some hypothetical scenarios: What if I enroll in SAVE for the Direct loans but keep my FFEL debt with AES in IBR 2009 without consolidating? How would my monthly payment be calculated?

No matter what repayment option I choose — consolidation or applying for SAVE — is it guaranteed that my repayment clock will not restart? I am afraid to lose the time that I've earned reflecting years that I have paid. 

Another thing: My loan servicer, AES, recently made me recertify my income and family size to remain in the income-driven repayment plan for my FFEL debt. If I refused, they threatened to make my monthly payment approximately $1,300 under a different plan. As a result, my payment increased more than $200 a month, to almost $500. Do you have any thoughts on this?

Finally, if I pay off my private loans, will that impact how my monthly payments are calculated for my government loans? Paying off those loans will not have anything to do with calculating my discretionary income, correct?

— Down To The Wire

Dear Down,

The deadline is indeed nearing to take advantage of a significant government benefit known as the one-time count adjustment for loan forgiveness. With your federal loans split between Direct and FFEL types, and using IBR 2009, you are in the category of borrowers who really should start a Direct Consolidation Loan for all your remaining loan types before Dec. 31.

Let's talk about why.

First, we'll begin with a thorough "physical exam" of your student loan debt. Reviewing your federal student aid data that you uploaded to the VIN Foundation's My Student Loans tool, I see that 57% of your student debt is comprised of federal Direct loans that are serviced by Nelnet. The remainder is comprised of privately held FFEL debt serviced by AES.

Your Direct loans are eligible for three distinct income-driven repayment plans: Income Contingent Repayment, IBR 2009 and SAVE. Your FFELs are eligible only for IBR 2009.

With your mixed loan types and repayment plan eligibility, I would start a federal Direct Consolidation Loan as soon as possible. Folks in your situation should run, not walk, to the Direct Consolidation Loan application. 

In the past, it was troublesome to consolidate loans already in repayment and usually not worthwhile. But right now, because of recent policy changes and the special one-time count adjustment for loan forgiveness, consolidating federal student loans can significantly improve your repayment situation going forward.

This gets a bit complicated, so bear with me.

If you submit your consolidation application before the end of 2023, then under the count adjustment that will occur sometime in 2024, you will receive at least the same forgiveness credit on your newly consolidated loan as you currently have and possibly more. You indicated using the IBR 2009 plan for 10 years, but your 2012 graduation year suggests you’ve been in repayment for longer than that. The upcoming count adjustment will count any repayment periods and some deferment/forbearance as forgiveness-eligible. Therefore, you could be credited with around 11 or 12 years of forgiveness time when the adjustment is applied next year.

Forgiveness time is extremely valuable. The sooner you reach forgiveness, the sooner your payments end and the less you will pay on your debt overall.

Now for the side effects.

Consolidating your loans will capitalize any unpaid interest, adding it to your principal. This also happens when switching from an IBR plan to any other repayment plan. In other words, regardless of the method you use to move your Direct loans from IBR 2009 to SAVE, your unpaid interest will be capitalized. It's better to consolidate all of your federal student loan balance into SAVE and potentially increase your forgiveness time (i.e., shorten your remaining payment time) than to switch only your Direct loans to SAVE and leave your FFELs unchanged.

Your servicer required you to recertify your income for your FFELs because these loans are privately held and, therefore, ineligible for the pandemic forbearance benefits that suspended interest, payments and recertification for income-driven plans. If you don't submit income renewal information on time for an income-driven plan, your payment defaults to that of a fixed 10-year plan. That was the situation AES warned about. It's really more of a standard procedure for income-driven plans than an actual threat. 

When applying for a Direct Loan consolidation, you can select a new loan servicer. I suggest choosing the servicer that is the official monitor for Public Service Loan Forgiveness, which at this time is Mohela. It's not that this servicer is good (all of them are terrible) but PSLF requires familiarity with income-driven repayment plans. That familiarity on their part should make using a plan like SAVE a bit easier for you.

Another thing is that during the consolidation process, you can apply for SAVE using the adjusted gross income on your most recent tax return rather than your current, higher, income. Not only is using that figure from your tax return the easiest way to apply for an income-driven plan, using the lower figure will produce a lower monthly payment.

Be aware that the consolidation application may contain outdated language and provide SAVE projections that might not align with what VIN Foundation simulations indicate. This discrepancy arises because the U.S. Department of Education does not count your current forgiveness time (yet), nor the added forgiveness time you'll receive under the count adjustment. Their projections also assume much more aggressive income growth, which tends to overestimate your income-driven repayment costs.

Based on your recent tax filing status, adjusted gross income and family size, your minimum payment under the SAVE plan should be around $645 a month, which is less than the current payment on your federal student loans. Your remaining private loans, regardless of whether you pay them off, will not affect the size of your SAVE payment. Private loans and federal student loans are independent of one another; they have separate payment arrangements.