Attorney General James Warns Student Loan Borrowers About the Risks of Loan Consolidation

November 4, 2026

NEW YORK - New York Attorney General Letitia James today issued a consumer alert warning federal student loan borrowers about consolidating their loans following recent changes to federal law enacted by the Trump administration. Loan consolidation is the process of taking out one new loan to pay back other pre-existing loans. After consolidation, old loans are paid off in full, and the borrower is responsible for making payments on one new loan. As a result of the so-called "One Big Beautiful Bill Act" (OBBBA), borrowers face new risks and irreversible consequences from loan consolidation. Attorney General James is urging New Yorkers to beware of misleading advice about loan consolidation and report those offering inaccurate guidance or pressuring borrowers to consolidate their loans to the Office of the Attorney General (OAG).

"The federal administration's policies have created new risks and financial consequences for borrowers who consolidate their loans," said Attorney General James. "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."

Borrowers have commonly sought to consolidate their loans to lower monthly payments, access certain loan programs like Public Service Loan Forgiveness, or get loans out of default. But as a result of OBBBA, beginning July 1, 2026, a new consolidation loan can permanently limit a borrower's repayment options and cut off paths to loan forgiveness. Attorney General James is warning borrowers that they may receive misleading or inaccurate advice that consolidation is required or may be financially beneficial. For many borrowers, that advice is wrong and could be costly.

Before consolidating their federal student loans, borrowers should know:

• Consolidation can change eligibility for repayment plan options. Starting July 1, 2026, if a borrower consolidates their existing loans, they will be treated as a new borrower, even if their older loans were paid under previous income-driven plans. New borrowers cannot use the old repayment plans such as Income-Based Repayment, Income-Contingent Repayment, or Pay As You Earn. Instead, they only get one income-driven payment option: the new Repayment Assistance Plan (RAP).
• Consolidation risks losing time previously earned toward income-driven cancellation. Borrowers will spend more time in repayment because RAP offers loan forgiveness after 30 years, which is longer than the 20-25 years offered under older income-driven plans.
• Parent PLUS borrowers face the greatest risk. The OBBBA also prevents Parent PLUS borrowers that consolidate loans after July 1, 2026 from accessing any income-driven repayment plan. Instead, parents who consolidate Parent PLUS loans after July 1, 2026 will have only the Tiered Standard Plan as a repayment option. The Tiered Standard Plan is not eligible for Public Service Loan Forgiveness.
• Consolidation as a means out of default still carries risks. Borrowers experiencing default still have the option to consolidate out of default, but consolidating out of default carries the same risks of limiting repayment plan options and losing time previously earned toward income-driven cancellation. Loan rehabilitation may be the more favorable option to place loans back in good standing.

Attorney General James encourages borrowers who were pressured to consolidate or received misleading or inaccurate advice regarding consolidation from a servicer, debt relief company, or anyone else to file a complaint with OAG. In September, Attorney General James warned New Yorkers about fraudsters using changes to student loan programs in order to mislead and take advantage of borrowers.

New Yorkers can get free help with their student loans from the Education Debt Consumer Assistance Program (EDCAP), which consumers can contact by phone at 888-614-5004 or by email at [email protected]. More information is available in the OAG's Student Lending Guide and from the National Consumer Law Center's Student Loan Borrower Assistance Project.