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By Suzanne Blake
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Federal student loan borrowers are being warned to think carefully before consolidating their debt due to changes implemented under the Trump administration.
While many of the changes went into effect July 1, New York Attorney General Letitia James issued an alert last week cautioning borrowers that consolidating their federal student loans could carry significant fiscal implications.
“The federal administration’s policies have created new risks and financial consequences for borrowers who consolidate their loans,” James said in a statement. “Anyone considering loan consolidation should do their research and beware of anyone attempting to pressure them to consolidate. I urge all New Yorkers to report any fraudulent practices to my office.”
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The warning follows changes enacted under the One Big Beautiful Bill Act and new Education Department regulations that took effect this summer.
The changes mean borrowers who consolidate their existing federal loans may lose access to repayment plans they previously qualified for, potentially sacrificing years of progress toward loan forgiveness.
Why It Matters
Federal student loan consolidation allows borrowers to combine multiple existing federal loans into a single new loan. Borrowers have historically used the process to simplify payments or get loans out of default.
However, changes that took effect July 1 have altered the consequences of consolidating. Under the new rules, borrowers who take out a new Direct Consolidation Loan are generally limited to two repayment options: the Tiered Standard Repayment Plan or the new Repayment Assistance Plan (RAP).
That can be a significant change for borrowers who previously qualified for older income-driven repayment programs, including Income-Based Repayment (IBR), Income-Contingent Repayment (ICR) and Pay As You Earn (PAYE).
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What To Know
Borrowers with eligible loans disbursed before July 1, 2026, may retain access to certain older repayment options, provided they do not receive a new loan or consolidation loan on or after that date. The ICR and PAYE programs are scheduled to end no later than July 2028.
But one of the biggest concerns involves borrowers who have already spent years making qualifying payments toward income-driven student loan forgiveness.
Under older programs, borrowers could generally qualify for forgiveness after 20 or 25 years of qualifying payments, depending on the repayment plan. The new RAP requires 30 years of qualifying payments before an eligible remaining balance can be forgiven.
That means some borrowers will lose progress toward income-driven forgiveness completely while also facing a longer repayment period.
There are also more difficulties depending on which degree program you’re taking, experts say. “The new federal student loan limits are creating significant financial challenges for Americans pursuing graduate and professional degrees, with researchers estimating that more than half a million borrowers could eventually need an additional $20,000 annually from other sources, particularly students entering expensive fields like medicine, law, and dentistry,” Alex Beene, financial literacy instructor for the University of Tennessee at Martin, told Newsweek.
Why Parent PLUS Borrowers Face Additional Risks
Parent PLUS borrowers are now dealing with significant restrictions under the new rules.
These federal loans are issued to parents to help pay for their children's undergraduate education. Under the changes, Parent PLUS borrowers who consolidate generally cannot access income-driven repayment plans through their new consolidation loan.
Instead, they are limited to the Tiered Standard Repayment Plan, which does not qualify for Public Service Loan Forgiveness.
“These restrictions were enacted to discourage excessive borrowing and pressure universities to control rising tuition costs, but we're already seeing an unintended consequence as students increasingly turn to private lenders and potentially face higher interest rates,” Beene said.
What Should Borrowers Do Before Consolidating Their Student Loans?
James’ warning does not mean that consolidation is never appropriate. It can still provide a way for some borrowers to address their defaulted federal student loans or manage certain loan situations.
However, borrowers should understand how the process could affect their repayment options and forgiveness eligibility before submitting an application.
For borrowers in default, the New York attorney general's office said loan rehabilitation may be a more favorable option in some circumstances, but it also has potential drawbacks.
The Department of Education's changes have prompted considerable pushback against President Donald Trump.
“One minute he (Trump) signals support for relief, while the next his administration is fighting existing programs in court and forcing borrowers into potentially more expensive repayment plans,” Kevin Thompson, CEO of 9i Capital Group and host of the 9innings podcast, told Newsweek.
“The reality is that borrowers are dealing with massive confusion, shifting policies, and a court system packed with appeals. At some point, borrowers have to stop listening to what is being promised and start looking at what is actually being done.”
What Happens Next
New York residents can contact the Education Debt Consumer Assistance Program at 888-614-5004 for free student loan assistance.
Borrowers in other states can review their loan information and repayment eligibility through the federal government's StudentAid.gov website.
Newsweek’s reporters and editors used Martyn, our AI assistant, to produce this story. Learn more about Martyn here. Contact Newsweek editors on this story: Samantha Beech and Edward T. Cummins
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