Loan Consolidation

What is Federal Consolidation? 

A Federal Consolidation loan is a powerful financial tool that allows you to reduce your monthly payments by extending your repayment term. It is also a practical student loan debt management tool that enables you to bundle all of your federal loans into a single loan. When you consolidate, your consolidation loan lender pays the outstanding balances on the loans you consolidate. In essence, you refinance your education debts.    

Is loan consolidation right for me?

Consolidation loans are not for everyone. Advantages and disadvantages depend on the type of loan, the loan amount, interest rates, disbursement date and repayment incentives. You will also need to consider the various loan provisions, including interest subsidy, deferment, forbearance, forgiveness and cancellation. Ask your consolidation lender for details.  

What is the interest rate?

Your consolidation interest rate is the weighted average of the interest rates on all loans being consolidated, rounded up to the nearest 1/8th percent and is fixed for the life of the loan.   

When is the right time to apply?  

By applying for consolidation while still in your grace period, you may save yourself some money. Stafford loans disbursed between July 1, 1995 and June 30, 2006 are variable rate loans (loans disbursed after July 1, 2006 have a fixed interest rate) and have two interest rates attached to them: one for in-school, grace or deferment periods and the other for repayment. Once you enter repayment on these loans, your interest rate will increase. If you consolidate your loans early enough in your grace period, the lender will use the lower grace period interest rate to calculate your new consolidation loan rate. Therefore, it may be in your best interest to consolidate your loans before you enter repayment. Be aware however that once you consolidate your loan you lose your grace period and will begin repayment withing 30 days. 

Can borrowers add additional loans to their consolidation loan?

Yes, by law, borrowers have 180 days after the consolidation is disbursed to add fully disbursed loans. After the 180 days is exhausted, the only way to add loans is to "reconsolidate". This process requires the borrower to have a new loan(s).    

How long will I have to repay my loan?   

Your repayment term is based on your total student loan debt. You will need to count both your eligible loans and ineligible ones in this question (the total amount of all your ineligible loans cannot be higher than the total amount of your eligible loans). Extending the repayment period increases the total interest costs because you will be making smaller payments over a longer period of time. However, you may prepay all or any portion of your loan at any time without penalty. Prepayment is encouraged, as it can significantly reduce the term of your repayment and therefore reduces the total amount of interest paid over the life of the loan. Extended repayment periods in the examples provided below are based on loan balance: $10,000-$19,999, 15 YEARS; $20,000-$39,999, 20 YEARS; $40,000-$59,999, 25 YEARS; greater than $60,000, 30 years.

What loans can I consolidate?  

Loans that are eligible for consolidation under the Federal Consolidation Program include: FFELP loans (Stafford, SLS, PLUS and Consolidation loans); FDLP loans (Stafford, PLUS and Consolidation loans); FISL loans, Perkins loans; Health Professions Student Loans, including Loans for Disadvantaged Students; Nursing Student Loans; and Health Education Assistance Loans. Note that restrictions may apply to specific loan types.  

What is the minimum balance required to be eligible for consolidation?

Check with your lender, most require a minimum of $10,000.   

Questions All Borrowers Should Ask About The Consolidating Lender And The Terms Of Your Loan

  • Who will be the lender of my refinanced loan?
  • Who will be the servicer of my refinanced loan?
  • What are the basic steps in the consolidation process?
  • How long will it take to complete my consolidation loan?
  • How will I receive information about my new lender and servicer once my consolidation loan is funded?
  • Are there any interest rate discount offers? If so, what are the terms?
  • Will I be able to keep my grace period benefits even if I apply in-grace?
  • What will my new interest rate be?
  • What will my repayment term be?
  • What will be my total interest cost over the life of my loan?
  • What repayment options do I have?
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