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Student Loan Consolidation |
Congress set up the Consolidation Loans Programs to allow
student loan borrowers to combine their loans into a single
new loan with flexible repayment and extended loan repayment
features. |
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Repayment |
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You are entitled to one 6-month grace period
after you stop attending a school at least half time. During
this grace period, the lender or loan servicer will contact
you and tell you how much your payments will be and how to
make them. If you go back to school, you can obtain a
deferment so you do not have to continue payments. The
Direct Loan Program offers a range of repayment plans:
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Standard Repayment plan - fixed payment
for up to 10 years to repay.
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Extended Repayment plan - fixed payment
for 12 to 30 years to repay, depending on loan balance.
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Graduated Repayment plan - smaller
payments at first and larger payments later for up to 30
years to repay, depending on loan balance.
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Income Contingent Repayment (ICR) plan -
payment amount is based on your loan balance and your
income (and your spouse's income if you are married) and
can vary year to year for up to 25 years. The Income
Contingent Repayment plan is NOT available to PLUS loan
borrowers.
Individualized payment plans can also be arranged with the
Direct Loan Servicing Center.
Changing repayment plans is a good way to
manage your loan debt when your financial circumstances
change. For example, you can usually lower your monthly
payment by changing to another repayment plan with a longer
term to repay the loan. There are no penalties for changing
repayment plans. |
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Default? |
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Borrowers who default
on their student loans are reported to credit bureaus, so
your credit rating and future borrowing ability will be
negatively impacted. In addition, legal action can be taken
to require payment through garnishment of wages and
withholding of tax refunds. |
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Interest rate |
| The interest rate for FFEL and
Direct Consolidation Loans is set according to a formula
established by federal statute. The fixed rate is based on
the weighted average of the interest rates on the loans
at the time you consolidate, rounded up to the nearest
one-eighth of a percent. The interest rate does not exceed
8.25 percent. The consolidation rate is fixed for the life
of the loan, which protects you from future increases in
variable rate loans but prevents you from benefiting from
future decreases in variable rates.
Borrowers with Stafford Loans issued on or after July 1,
1995, can reduce the consolidation rate by up to half a
percentage point or more by consolidating before the end of
the grace period.
If a borrower wanted to consolidate only Direct or
FFEL Stafford Loans made between July 1, 1998 and June 30,
2006, the 2006-07 Consolidation Loan interest rate for loans
that have entered repayment would be 7.14 percent. To
consolidate those same loans during a grace or deferment
period, the rate would be 6.54 percent. If a borrower
consolidated PLUS Loans made between July 1, 1998 and June
30, 2006, the interest rate for the resulting PLUS
Consolidation Loan would be 7.94 percent.
The interest rate you would receive, however, depends on
which federal student loans are being consolidated. For
example, your rate would be higher if you consolidated a 5
percent Federal Perkins Loan along with a 6.54 percent
Direct or FFEL Stafford Loan |
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Advantages |
- Lower monthly payments by as much as 45%
- A single monthly loan payment on one bill
- Low, fixed interest rates
- No application fees or credit checks
- A variety of flexible payment plans that allow you to
design a repayment plan that best suits your financial
needs
- Special borrower benefits that can lower the amount of
interest paid over the life of the loan
- No penalties for prepayment, so you can repay your
loan early at any time
- A personal loan counselor who can answer your
questions and help you through the application process
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Disadvantages |
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- If you are close to paying off
your student loans, it may not make sense to consolidate
or extend your payments
- Remember that by extending the years of repayment for
your loans, you may be increasing the total amount you
have to pay in interest. Be sure to discuss your options
with a loan counselor before you select a payment plan.
- Not all programs offer the same borrower benefits,
make sure you choose a reliable program that offers good
borrower benefits and reliable service.
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Fees |
| Borrowers who consolidate will
not pay any application fees or prepayment penalties.
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Credit Checks |
| Under FFEL Consolidation Loans,
no credit checks are required, even for PLUS borrowers.
Under Direct Loan consolidation, PLUS borrowers are subject
to a check for adverse credit history. |
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Eligibility |
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The National Student Loan Data System (NSLDS)
is the U.S. Department of Education's central database for
student aid. It receives data from schools, agencies that
guaranty loans, the Direct Loan program, the Pell Grant
program, and other U.S. Department of Education programs.
NSLDS provides a centralized, integrated view of Title IV
loans and Pell grants that are tracked through their entire
cycle; from aid approval through closure.
- Borrowers who are currently in their grace or
repayment period and who owe money on eligible Federal
student loans
- Borrowers currently enrolled in school can no longer
consolidate their loans. The Higher Education
Reconciliation Act of 2005 eliminated the provision that
allowed a FFEL or Direct Loan borrower who is enrolled in
school on at least a half-time basis to request to enter
repayment early on his or her Stafford Loans if the lender
approves. Repayment is now defined as not beginning until
6 months and one day after the date the student ceases to
carry at least one-half the normal full- time academic
workload, as determined by the school. Therefore, a FFEL
or Direct Loan borrower who is still enrolled in school at
least half-time may no longer request to enter repayment
early to apply for a FFEL or Direct Consolidation Loan.
- Borrowers who are delinquent or in default must meet
certain requirements before they may consolidate their
loans. Contact your loan holder for more information.
- PLUS loans (parent loans) are eligible for
consolidation once they are fully disbursed.
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One Thing to Note |
| Once made, Federal
Consolidation Loans cannot be unmade. That's because the
loans that were consolidated have been paid off and no
longer exist. Take the time to study your consolidation
options before you submit your application. This checklist
has been designed to help you determine whether and how you
should consolidate your loans. |
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Eligible Loans |
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The following federal
education loans are eligible for consolidation into a Direct
Consolidation Loan:
- Direct Subsidized and Unsubsidized Loans
- Federal Subsidized and Unsubsidized Federal Stafford
Loans
- Direct PLUS Loans and Federal PLUS Loans
- Direct Consolidation Loans and Federal Consolidation
Loans
- Guaranteed Student Loans
- Federal Insured Student Loans
- Supplemental Loans for Students
- Auxiliary Loans to Assist Students
- Federal Perkins Loans
- National Direct Student Loans
- National Defense Student Loans
- Health Education Assistance Loans
- Health Professions Student Loans
- Loans for Disadvantaged Students
- Nursing Student Loans
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Ineligible Loans
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Some loans are always
ineligible for consolidation. While these loans may not be
included in a Direct Consolidation Loan, they may be
considered in the calculation of the maximum repayment
period under the Graduated or Extended Repayment Plan. These
include but are not limited to the following:
- Loans made by a state or private lender and not
guaranteed by the federal government
- Primary Care Loans
- Law Access Loans
- Medical Assist Loans
- PLATO Loans
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Providers |
| Two
lenders who provide consolidation loans with online
applications are
Scholar Point and
Next Student |
