FAFSA loan consolidation causing interest to be counted as principal - will I miss out on forgiveness?
I recently consolidated my student loans after being told this was necessary to qualify for PSLF (Public Service Loan Forgiveness). Now I'm freaking out because my loan servicer is showing my new principal balance as my original principal PLUS all the previous interest I had accumulated! My original loans totaled about $48K, but after consolidation it's showing as $71K principal with another $7K in new interest already accruing on top. If Biden's administration creates a plan to forgive interest (like they've hinted about), I'll completely miss out since my interest was converted to principal. Is this even legal? Has anyone else dealt with this after consolidating for FAFSA-related loans? I feel completely blindsided and trapped.
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Mateo Sanchez
Same thing happened to me last year! When you consolidate, they take whatever your payoff amount was (principal + outstanding interest) and that becomes your new principal. It sucks but it's totally legal. The loan servicers don't explain this clearly AT ALL when you're going through the consolidation process.
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Nia Wilson
•That's so frustrating! Did you find any workarounds or appeals process? I would have NEVER consolidated if I knew this would happen. Now I'm worse off than before.
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Aisha Mahmood
omg this is so messed up!!! i was literally about to consolidate my loans for pslf next week 😳 thanks for posting this
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Ethan Clark
•You should still consolidate if you need PSLF! Just be aware that your interest will capitalize (add to principal). But PSLF forgives your entire remaining balance after 120 qualifying payments, so in the long run it shouldn't matter if your goal is forgiveness through that program.
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AstroAce
I consolidated mine and got the same shock when I saw the new balance. But hear me out - if you're going for PSLF, it actually doesn't matter much in the long run since they forgive whatever is left after 120 payments. The real question is what your monthly payment will be. Are you on an income-driven repayment plan?
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Nia Wilson
•Yeah, I signed up for IDR when I consolidated. My payment is $372/month which isn't terrible, but I just hate seeing that massive principal number. Will that interest capitalization affect my PSLF timeline at all?
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Ethan Clark
Financial aid counselor here - this process is called "interest capitalization" and unfortunately it's standard practice when consolidating federal loans. The good news is that if you're pursuing PSLF, you'll still have your remaining balance forgiven after 120 qualifying payments regardless of how much that balance is. What's critical right now is making sure: 1. You're on the right repayment plan (PAYE, REPAYE, IBR, or ICR) 2. You're working for a qualifying employer 3. You're certifying your employment annually Don't give up on PSLF because of this - it's still going to save you money in the long run if you qualify.
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Nia Wilson
•Thank you for this explanation! I'm definitely on track with a qualifying employer (public school teacher). Just submitted my first employment certification form last month. I guess I'll try to ignore that big scary number and focus on making my 120 payments.
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Yuki Kobayashi
You do realize Biden has nothing to do with FAFSA right? FAFSA is just the application for initial financial aid. Your loans are serviced through the Dept of Education and the loan servicers. This whole system is so confusing and they don't explain anything clearly!
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Carmen Vega
•The poster is talking about consolidated federal student loans that were originally obtained through FAFSA applications during college. And Biden's administration has implemented multiple student loan forgiveness initiatives, so the connection makes sense even if the terminology isn't perfectly precise.
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Carmen Vega
I've been dealing with loan servicers for 15+ years now through FAFSA-originated loans, and unfortunately, interest capitalization is standard. It sounds like nobody properly explained this to you before you consolidated. Have you tried calling FSA directly about this? The main student aid number is practically impossible to get through on, but I used a service called Claimyr (claimyr.com) that got me connected to an actual FSA agent in about 10 minutes instead of waiting on hold for hours. They have a video showing how it works: https://youtu.be/TbC8dZQWYNQ The agent I spoke with explained all the details of consolidation and my repayment options much better than my loan servicer did. Worth a call to understand your specific situation better.
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AstroAce
•Thanks for sharing this! I've been trying to get through to FSA for weeks about my PSLF application status. The wait times are insane.
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Nia Wilson
•I'll check this out - thanks! You're right that nobody explained the interest capitalization clearly during the consolidation process. I wish I had known to ask more questions.
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Andre Rousseau
EVERYONE NEEDS TO KNOW THIS!! the government and loan companies are STEALING from us by doing this interest trick! i graduated in 2016 and my original loans were $32K, now they're showing as $58K after consolidation and forbearances. THE SYSTEM IS RIGGED AGAINST US!!!
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Mateo Sanchez
•It definitely feels that way sometimes. But to be fair, the terms are in the promissory notes we signed... they just make those documents incredibly complicated and boring so nobody actually reads them.
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Aisha Mahmood
wait so if im starting college this fall and will be filling out my first FAFSA, will this affect me too? im so confused about all this loan stuff
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Ethan Clark
•No, this won't affect you now. This issue only happens later when people consolidate already-existing federal loans. Just focus on completing your FAFSA accurately to qualify for grants first (free money), then subsidized loans (government pays interest while you're in school), and only take unsubsidized loans if absolutely necessary.
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Ethan Clark
One important thing to add - if you're concerned about the interest capitalization that happened during consolidation, you might want to make small extra payments (even $20-50/month) that go directly to principal once you start working toward PSLF. This can help reduce the overall size of your loan despite the capitalization. Also, keep an eye on the PSLF waiver programs. The Biden administration has been regularly extending and modifying these waivers to help more borrowers qualify, and there might be further adjustments that could benefit your situation.
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Nia Wilson
•That's a great tip about making small extra payments. I didn't realize I could do that while on PSLF. And yes, I'll definitely keep an eye on any new waiver programs or policy changes!
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