Loan Consolidation
Loan consolidation allows you to refinance any
or all eligible outstanding federal student loans and create a single new loan
with one monthly payment. The new loan will have a fixed interest rate, new
terms, and may have an extended repayment period of up to 30 years.
Both the Federal Family Education Loan (FFEL) Program and the Direct Loan
Program offer consolidation loans. FFEL Consolidation loans are available from
participating lenders, and Direct consolidation loans are available from the
federal government. Alternative consolidation options are also available through
private lenders. However, benefits, repayment options and application procedures
vary.
Consolidation loans are not for everyone. Before choosing loan consolidation,
be sure to review all your options.
Who is eligible for loan consolidation?
To be eligible for loan consolidation under the FFEL
Program, you must agree to the terms and conditions listed on the Application
and Promissory Note, which include:
- You are not enrolled in school, or you are enrolled
on a less than half-time basis.
- You are in the "grace period" or already in repayment
on EACH loan you have chosen to consolidate.
- If you are in default, you must either make
satisfactory repayment arrangements with your current lender or agree to repay
the consolidating lender under an income-sensitive repayment plan.
- You must agree to notify the lender of any address
changes.
- Spouses may consolidate their eligible loans to
Your alternatives depend on what you plan to
accomplish by consolidating
- Need a lower monthly payment?
If a lower monthly payment is your
goal, your current lender / loan holder may already offer an alternative
option. - Temporarily struggling to keep up with your loan
payments?
If
meeting your monthly payment is difficult, consider deferment or forbearance
options that allow eligible borrowers to temporarily postpone or reduce their
FFEL loan monthly payment. - Juggling too many payments with one lender?
If one lower
monthly payment is your intention, ask about “serialization”, the combining of
all loans held by one lender. It allows your lender to create one monthly
payment that is proportionally applied across all of the underlying loans.
Multiple loans with one lender are often "serialized" automatically. - Simply juggling too many loans?
You may also ask your lender to purchase your
education loans held by another lender or servicer. This would allow for
serialization and/or combined billing.
Repayment Options
There are four repayment plans for paying back your loan: standard,
graduated, income-sensitive and extended.
- Standard plan
allows you to pay the same amount each month – with up to 10 years to repay.
- Graduated plan
calls for your payments to start out low and increase over time, with up to 10
years to pay.
- Income-sensitive plan bases you payments on a percentage of your gross monthly income
and the amount you borrowed, but they must cover at least the interest due.
- Extended plan
is for borrowers who have more than $30,000 in outstanding loans. The payments
can be fixed or graduated, with repayment up to 25 years.
Determine what loans may be consolidated
Most federal loans are eligible for FFEL Program consolidation,
including:
- Subsidized Stafford Loans
- Unsubsidized Stafford Loans
- Consolidation Loans
- PLUS Loans
- Perkins Loans
Private loans from banks,
colleges, or family members cannot be consolidated.
Advantages and Considerations of Student Loan
Consolidation
This chart lists the features of loan consolidation, along with some
considerations to help you decide if consolidation is the right option for
you.
| Features |
Advantages |
Considerations |
| One lender holds the loan. |
- You'll always know whom to contact
- You receive only one bill.
|
Other lenders may offer better deals, prepayment
incentives and other benefits. |
| A fixed interest rate. |
If you consolidate while rates are
low, you'll lock in a low interest rate. If rates rise, you'll save
money. |
If interest rates fall in the
future, you'll be locked into a higher rate. |
| Separate federal student loans are
combined into one loan. |
- Only on payment to make every month.
- Subsidized FFEL and Direct Loans retain their interest
subsidy benefits during deferment if consolidated during
prepayment.
|
- Non-federal loans, such as college or private
alternative loans, cannot be included.
- Possible loss or change in benefits,. Previous loans
will be combined into on a new loan with a new set of benefits that may
include different deferment and forbearance options. Check with your
lender and compare.
|
| No fees,
credit check or prepayment penalties. |
- As long as you meet the lender's requirements for
consolidation, you'll be
approved. - You may pay off the loan at any time without
penalty.
|
Some lenders
require a minimum loan balance to apply. |
| An extended
repayment period from 10 to 30 years, depending on your total
debt. |
Usually, a
lower monthly payment. |
Typically, a
significant higher payback. An extended payment period means paying more
interest over the life of the loan. |
| Four repayment
plan options: standard, graduated, income-sensitive or extended. |
- You can choose the prepayment plan
that best fits into your financial situation or future plans
- Same repayment plans as those offered under FFEL
Program, but with the option of an extended repayment
term.
|
- Minimal reduction in the principal amount
owed.
- Increase in total loan costs.
|
| You may
consolidate during the grace period on your loans. |
Your interest
rate could be lower because the interest rates that apply to your loan
during the grace period are lower than the rates that apply after entering
repayment. |
If you
consolidate too early, you may lose part of your grace period.
Consolidation loans don't have a typical grace period; your first payment
is due within 60 days of the time your consolidating lender pays off your
underlying loans. |
Calculate your new interest rate
A consolidation loan's new interest rate is the weighted average of the
interest rates on the loans being consolidated, rounded up to the nearest
one-eighth of one percent. The new interest rate cannot be higher than 8.25% and
is fixed for the life of the loan.
How do I apply?
The first step is to contact your current
lender. If you have only one lender, you must apply through them.
If you
have more than one lender, you can choose which one you’d like to consolidate
through.
What happens next?
It usually takes 30 to 90 days for an
application to be processed. If your application is approved, the consolidating
lender will pay off the full amount of the original loans and send you a
disclosure statement and repayment schedule for your new Consolidation loan.
Loan Information
If you need information on your loans, you can access the National Student
Loan Data System, the U.S. Department of Education’s central database for all
federal student aid records (private loans are not listed).
- Visit http://www.nslds.ed.gov/nslds_SA/ - your U.S.
Department of Education PIN will be required
(the same one used in the online FAFSA). - You’ll see a listing of your federal student loans
with the amounts, dates of origination and outstanding
balances.
|
