Student Loan Consolidation
For most students emerging from undergraduate and graduate programs, there is a troubling load to bear: unpaid student loans. When there are multiple loans, this sometimes requires separate payments to make each month. One effective way to deal with this is to consolidate all of your outstanding loans under one new loan created by what is called "consolidation". This can simplify the borrower's paperwork (one monthly loan payment to make instead of several) and may bring additional benefits. For instance, in the federal consolidation program, the borrower can extend repayment from the standard 10-year period to 12, 15, 20 or more years (depending on the amount consolidated). This will lower the monthly payment, but will increase the overall cost of the loan.
Private student loans usually cannot be consolidated with federal student loans. The primary benefit of consolidating private loans is the simplification to one loan payment per month. Other possible benefits of private loan consolidation are the reduction of your interest rate (if your credit score has improved since you first got the loan) and lower monthly payments because of extended repayment terms.
How Much can you Consolidate?
Federal Loans
For federal loans, you can include any Direct Loans and FFEL loans up to the total combined remaining balance of those loans. Once you consolidate them, under this program, those loans will be immediately repaid in full on your behalf and you will be paying on a new loan under new terms that you can select under the loan consolidation plan that works best for you.
Private Loans
Consolidation of private student loans varies, so you should contact your lender directly. Be sure to inquire about the interest rate (is it fixed or variable) and about any fees and prepayment penalties.
Key Facts about Consolidation
- The interest rate on a federal consolidation loan is fixed and is the weighted average of the interest rates on the loans being consolidated.
- The length of a federal consolidation loan can be extended up to 30 years which can also help lower the amount of your monthly payments.
- You can choose the repayment plan that best suits your actual income situation. One plan called the Income Contingent Plan will tailor a payback schedule tied to your income.
- Once consolidation becomes active, always maintain contact with the consolidation lender on any changes in your income or unusual circumstances that may affect your ability to maintain payments. Throughout repayment, communication with the lender is critical to protecting you and your credit rating.
How to Consolidate
- Gather all of your outstanding loans.
- For federal student loans, go to the Department of Education's site and follow the instructions relating to completing consolidation on line.
- For private student loans, you should contact the lender directly and ask about their loan consolidation program.
- If you can, arrange for automatic monthly payments from your bank. It will make the entire process simple and it will protect you against missing payments, which is never a good thing.
Consolidating your student loans makes sense in every respect. It's a smart, time-saving, and likely, money-saving strategy.
FAQs
The only way you can re-consolidate a federal consolidation loan is by adding a new (or otherwise not already consolidated) federal loan. Therefore, if you have already consolidated your loans once and now have a new loan that was not part of the original consolidation, you can re-consolidate the loans.
Keep in mind that the rate on your re-consolidated loan will be different than that of your original consolidation loan.
It may make sense to consolidate your loans into two separate consolidation loans. This situation arises occasionally when the method of calculating the interest rate on your consolidation loan gives more weight to loans that have rates higher than the capped consolidation rate or rounds up the interest. Here are a few examples:
- If you are consolidating PLUS loans, consolidate any PLUS loans taken out since July 1, 2006 separately from PLUS loans taken out prior to July 1, 2006.
- If you are consolidating loans with an interest rate that falls on an even 1/8th of a percentage rate (for example, 7.125%) - but is not greater than 8.25% - consolidate those loans separately.
- Consolidate any loans with an interest rate greater than 8.25% separately from other loans. This way, their higher rate won’t bring up the interest rates of the other loans.
Remember to keep these consolidation loans separate when working with your lender.
If you only have newer federal loans (issued on or after July 1, 2006), then it doesn’t matter when you consolidate. These loans have fixed rates, so you won’t benefit by consolidating at a particular time when rates might be lower. If you have older federal student loans (issued before July 1, 2006), then timing can be important.
There are three general time periods to consider for federal loans issued before July 1, 2006:
- You are still in school
- You have left school, but haven’t started repayment
- You are in repayment
For either older or newer federal student loans, if you're still enrolled in the program for which you borrowed, you can't consolidate. If you have graduated or left school, but have not started repayment, your federal student loans are in a grace period. Your grace period interest rate is lower than the one you will carry once you enter repayment. If you consolidate during your grace period, you could lock in that lower rate.
If you are in repayment, you may consolidate at any time. However, there are still some timing factors to consider. On July 1st of each year, interest rates for older federal student loans are reset. Keep an eye out for information about what the new rate will be.
Requirements vary by each lender, so check with them for more specific information. Here are some general eligibility requirements:
- You have at least one outstanding qualifying federal loan.
- You have total outstanding federal education loan balances of $7,500 or greater. (This amount can vary from one lender to the next, and some lenders will consolidate lesser amounts.)
- None of your existing student loans are in default. If you are in default on a loan, you first need to make repayment arrangements with your lenders before they will consider consolidating them.
- You are a U.S. citizen.
- You are no longer (or are soon to be no longer) enrolled in the program for which you borrowed the loans you want to consolidate. In other words - you must have graduated or left the program for which you borrowed.
For a federal consolidation loan, you can include just about every loan issued under the federal programs, including:
- Subsidized Federal Stafford Loans (SS)
- Unsubsidized Federal Stafford Loans (US)
- Federal Parent Loans for Undergraduate Students (PLUS)
- Federal Supplemental Loans for Students (SLS)
- Federal Perkins Loans (PERK)
- Nursing Student Loans (NSL)
- Health Education Assistance Loans (HEAL)
- Auxiliary Loans to Assist Students (ALAS)
- Health Professions Student Loans (HPSL)
- Federal Insured Student Loans (FISL)
- Guaranteed Student Loans (GSL)
- Federal Unsubsidized Consolidation Loans (UCON)
- Federal Subsidized Consolidation Loans (SCON)Federal Direct Subsidized Student Loans (DSS)
- Federal Direct Unsubsidized Student Loans (DUS)
- Federal Direct Consolidation Loans (DCON)
- Federal Direct Parent Loans for Undergraduate Students (DPLUS)
When should I consolidate into more than one federal loan?
When should I consolidate my student loans?
Am I eligible to consolidate my federal student loans?
What types of loans can I consolidate?
The only way you can re-consolidate a federal consolidation loan is by adding a new (or otherwise not already consolidated) federal loan. Therefore, if you have already consolidated your loans once and now have a new loan that was not part of the original consolidation, you can re-consolidate the loans.
Keep in mind that the rate on your re-consolidated loan will be different than that of your original consolidation loan.
