Consolidating federal student loans can permanently narrow repayment choices and cut off routes to forgiveness under recent federal law changes, New York Attorney General Letitia James warned Wednesday.
In a consumer alert, James urged borrowers to seek free, unbiased advice before combining loans and report anyone who pressures them to consolidate or gives misleading guidance. Her office said changes under the One Big Beautiful Bill Act create risks that borrowers may be unable to reverse.
Consolidation replaces existing loans with one new loan. The old loans are paid off in full, leaving the borrower responsible for payments on the replacement loan. Borrowers have commonly used the process to seek lower monthly payments, gain access to programs such as Public Service Loan Forgiveness or get out of default.
But advice that consolidation is required or will improve a borrower's finances can be wrong and costly, the attorney general's office said. The alert identifies repayment restrictions that began July 1, 2026.
Consolidation can change repayment eligibility
A borrower who consolidates existing federal loans is treated as a new borrower under the changes, even if the older loans were being paid through a previous income-driven plan, according to the alert.
That can eliminate access to Income-Based Repayment, Income-Contingent Repayment and Pay As You Earn. The new Repayment Assistance Plan, known as RAP, becomes the only income-driven payment option for those new borrowers, the office said.
The change also can put time already earned toward income-driven cancellation at risk. RAP offers forgiveness after 30 years, compared with 20 to 25 years under older income-driven plans, potentially extending a borrower's repayment period.
Parent PLUS borrowers face the greatest risk, according to James' office. Parents who consolidate those loans after July 1, 2026, cannot access any income-driven repayment plan under the law. Their only repayment option would be the Tiered Standard Plan, which is not eligible for Public Service Loan Forgiveness.
Defaulted borrowers urged to consider their options
Borrowers in default can still use consolidation to return loans to good standing. But they face the same risks of restricted repayment options and losing previously earned time toward income-driven cancellation, the attorney general's office said.
Loan rehabilitation may be a more favorable way to restore good standing, the office said. James urged borrowers to research their options before agreeing to consolidation and be wary of pressure from loan servicers, debt relief companies or others.
Borrowers who received inaccurate advice or were pressured to consolidate can file a consumer complaint with the attorney general's office. The warning follows a September alert about scammers exploiting changes to student-loan programs.
New Yorkers can get free help from the Education Debt Consumer Assistance Program at 888-614-5004 or edcap@cssny.org. Additional information is available in the attorney general's Student Lending Guide and through the National Consumer Law Center's Student Loan Borrower Assistance Project.
FingerLakes1.com is the region’s leading all-digital news publication. The company was founded in 1998 and has been keeping residents informed for more than two decades. Have a lead? Send it to news@fingerlakes1.com.