For PLSF one should consolidate all non-direct loans.
If a person has paid PLSF qualifying payments for a year or two on direct loans, which show as qualified for PSLF, and then realizes that 20% of total loans were not direct and not consolidated, what is the process for consolidating that small batch of loans into a separate entity for PSLF payments for the future?
In other words, can you consolidate only a portion of the total loans? This would then allow 80% to be forgiven a year or two before the rest.
Since the servicers do not always have accurate info, it would be great to know what issues to look for in doing this.
I was in the same situation. Most of my M1 loans were non-direct, and all loans after that were direct loans. The short answer is yes, you can (and probably should) consolidate just the non direct loans.
Any payments made on non direct loans, as you're aware, are not PSLF eligible. So unfortunately you don't get 2 years of credit even though you've been making payments.
DO NOT consolidate your current direct loans--you will lose PSLF-eligible payments made on those loans, because the consolidation loan is a new loan, and the clock starts over. If you talk with someone on the phone and they say you need to consolidate all your loans together they are wrong--talk to someone else. I believe the application is done all online anyway--the application part was pretty simple from what I recall (I consolidated 3 years ago)
So your current loans would be eligible for forgiveness in 8 years, and the new direct consolidation loan will be eligible in 10. Keep in mind, if those loans are small enough combined, you may pay those off in those two years depending on what your payment plan and monthly payment are. If that is the case, it's better to not consolidate because your interest will capitalize when you consolidate. (I assume if you're talking about consolidating 20% of your loans and they're large enough to be considering PSLF, that you're unlikely to pay them off in those two years, but I mention this just in case).
You can (and I did) consolidate only the non-direct loans. You can consolidate one loan, or three, or all--you can pick and choose. I consolidated all my M1 loans (subsidized and subsidized-- my new loan will has a subsidized portion and unsubsidized portion). Just make sure you get everything right the first time with the application--I did not consolidate the subsidized loans because I thought it would become unsubsidized. When I learned that was not the case, I added it to the application, which created an issue where they did not recalculate the interest rate (which was supposed to go down as I added a loan that was at a lower rate). It took six months and communicating with my schools financial aid director and an actual senior-level administrator at FedLoan, but we fixed the issue and they say they now have protocols set to prevent others from experiencing the same issue. Still, it was a hassle, and do whatever you can to keep things simple!
