Should you consolidate your student loans with a private lender

President Biden’s student loan forgiveness program was good news for millions of Americans struggling with this debt. But there is already a lot of false information about how to take advantage of the program. And a Google search won’t necessarily lead you to the right answer.

Your loans must be held by the US Department of Education to be eligible for most types of loan relief. Loans held by private banks or financial institutions are not eligible for debt forgiveness, and that includes if you had federal loans and consolidated them with a private lender.

But a Google search for “direct loan consolidation” and “student loan consolidation” on Tuesday was first filled with ads from private companies, including SoFi and Credible, as Bryce McKibben, senior director of policy and advocacy at the house of The Hope Center, which studies student loans, first posted on Twitter. The Federal Student Aid website is the fourth or fifth result.

This can be confusing for borrowers who don’t know any better. If they were to consolidate with a private lender right now, they would lose their eligibility for the discount.

After McKibben tweeted about the results, the Federal Student Aid site became the top Google search result for “direct loan consolidation” starting Wednesday. Yet other related search terms populate non-government websites first.

Here’s what borrowers need to know about consolidating their loans so they don’t miss any federal rebate programs.

Consolidated loans can still be canceled, if they are federal loans

There are several reasons why someone might consolidate their student loansincluding consolidating all your loans under one manager so your monthly payments are streamlined into one bill.

And some of the Ministry of Education’s remission programs require borrowers to consolidate their loans to be eligible. An example is cancellation via the Limited Public Service Loan Forgiveness Waiver (PSLF).

The derogation allows civil servants to follow the PSLF course receive credit for partial or late payments they have already made, or for payments made under the wrong repayment plan. To use it, applicants must first consolidate all their loans into one direct loan.

Borrowers must also do so to be eligible for income-contingent reimbursement (RID). These plans can reduce a borrower’s monthly payment and are eligible for a discount after 20 to 25 years.

Additionally, borrowers with loans made under the Federal Family Education Loans (FFEL) program may be eligible for forgiveness if they consolidate into a direct loan. Additionally, consolidating FFEL and Perkins commercial loans into one direct loan makes them eligible for the current pause on federal student loan payments and accrued interest, McKibben said. Fortune in an email.

But again, that’s only if the loans are held by the Department of Education (and managed by one of the companies it contracts with) – not by a private lender.

“We know for certain that borrowers who consolidate loans that were disbursed on or before June 30, 2022 will be able to get forgiveness,” McKibben said. This means that many FFEL commercial loans and all Federal Perkins loans are eligible for forgiveness.

That said, the government is still negotiating with the FFEL commercial industry to see if there is a way for borrowers to receive a discount without the need for consolidation, according to McKibben.

“We don’t know what time frame they are on, and some borrowers may want to consolidate now to take advantage of the payment and interest break,” he says.

The government will not charge you to consolidate loans

The Ministry of Education does not charge borrowers any fees to consolidate. Private companies may reach out and offer to consolidate your loans for a fee, but they have no affiliation with government.

Private lenders may be able to offer a lower interest rate, although this is unlikely and based on your credit score. But consolidate your federal loans in private lending carries risks– including that you would lose the possibility of having your debt cancelled.

Another thing to consider when consolidating, according to McKibben: if you have a lot of unpaid interest.

“When a borrower consolidates, their interest is capitalized into the principal balance,” he says. “If a borrower doesn’t have much accrued interest, or the new balance after compounding is less than or very close to the $10,000/$20,000 offered by cancellation, it makes financial sense to consolidate.”

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