Student Loan Consolidation Information
The following information is provided only as a general summary of federal student loan consolidation programs and is subject to change based on the requirements of the respective consolidating lenders. It is not intended to be all inclusive. As such, it is in the borrower's best interest to contact consolidating lenders directly to obtain accurate, up-to-date program information.
Initially, a borrower should contact their student loan lender(s) to request information on loan consolidation programs they may offer. When investigating student loan consolidation programs, keep in mind that the reduced monthly payment achieved when the consolidating lender purchases a borrower's student loans and extends the length of the repayment period for the newly created consolidation loan will increase the borrower's cost.
Can't remember who your lender(s) or loan holder(s) is? the National Student Loan Data System (NSLDS) may be able to help.
Remember, the "great deal" described on that postcard you just received in the mail may be tempting, but loan consolidation is a long-term relationship with a lender - typically about as long as a mortgage. Choose your consolidation lender at least as carefully as your Stafford or alternative loan lender (Choosing a Lender).
PROS AND CONS OF CONSOLIDATION
- It will combine all of your debt into one loan with a fixed interest rate and one monthly payment.
- Most of the time, the consolidated interest rate and monthly payment will be lower than if you do not consolidate.
- Although you may lower your monthly payment, your loan terms may be extended upon consolidation.
- Your monthly payment is lower, but you will pay MORE overall. With longer terms, there is more time for interest to accrue, and the total amount you pay on the loan will be more.
Generally, borrowers may be eligible for Federal Family Educational Loan Program (FFELP) consolidation if they meet the following conditions:
- The borrower has student loans totaling more than $7500 with more than one lender and would like a repayment term that is longer than 10 years;
- If the borrower has delinquent or defaulted loans, satisfactory repayment arrangements have been made with the holder of the loans prior to consolidation;
- Married couples if they agree to each be responsible for the entire loan debt regardless of any change in their marital status (loans can be discharged due to death or disability only if both individuals are affected and qualify).
The length of the consolidation loan repayment schedule will vary from 10-30 years based on the amount of student loan debt and borrowers may have the option of choosing among several different repayment options. Examples of repayment options include: standard monthly payments; graduated repayment; and income-sensitive repayment.
The interest rate is usually the weighted average of the loans being consolidated, rounded up to the nearest whole percent, not to exceed 8.25%. There are usually no origination fees, service charges or early repayment penalties associated with the consolidation loans.
Borrowers may also have the option of consolidating their federal student loans through the Federal Direct Consolidation Loan even if the student has not borrowed through the Direct Loan program. Direct loan consolidation offers standard, extended, income-contingent and graduated repayment options. Borrower's loans may also be consolidated while still in an in-school status. Contact the Consolidation Department of the Direct Loan Servicing Center for more information at 1-800-557-7392 or on the internet at http://www.ed.gov/offices/OSFAP/DCS/index.html.
COMMON LOAN CONSOLIDATION REPAYMENT OPTIONS
Standard Payment Plan
The consolidation loan amount is repaid in equal monthly payments over the maximum period allowed.
Income Sensitive Plan
The repayment amount is adjusted annually based on your total monthly income. Payments must cover at least the interest that accrues between scheduled payments. The maximum payment may never exceed three times the amount of any previously scheduled payment amount.
Graduated Repayment
Payments start low and gradually increase during the repayment period.
NOTE: The total interest paid on the loan is higher through the income sensitive and graduate repayment plans than the standard repayment plan.
DEFERMENT OPTIONS
Generally, consolidation loans are eligible for the following deferments:
- Full-time Student
- Half-time Student
- Graduate Fellowship
- Rehabilitation Training
- Economic Hardship
- Unemployment
The Federal government will pay the interest that accrues during one of these authorized deferment periods only on the loans included in the consolidation that are subsidized loans.
Married couples are eligible for deferments only if both parties meet the deferment requirements.
More Federal Loan Consolidation Information
