Federal Loan Consolidation – A Money Management Tool
Borrowers will apply from the www.studentloans.gov website. To ask questions about consolidation before you apply for a Direct Consolidation Loan, call 1-800-557-7392.
Not all students will want to consolidate their federal loans. There are many factors to consider when deciding whether or not to consolidate your loans. Visit www.studentaid.ed.gov/repay-loans/consolidation for more information.
New features include the following:
A National Student Loan Data System (NSLDS) lookup will be performed, and information about an applicant's federal education loans will populate within the application. The applicant will have the opportunity to add loans to and/or remove loans from the information obtained from the NSLDS.
An applicant can consolidate a loan still in grace period and delay entering repayment until closer to the grace period end date, by indicating this at the time of applying.
An applicant will choose the federal loan servicer that he or she wants to complete the consolidation.
An applicant will select the repayment plan under which he or she wants to repay the Direct Consolidation Loan. When making this selection, an applicant who is interested in one of the "income-driven" repayment plans will be able to complete the Electronic Income-Based Repayment (IBR)/Pay As You Earn/Income-Contingent Repayment (ICR) Plan Request as part of the Direct Consolidation Loan process.
If you feel you may be eligible for Public Service Loan Forgiveness, the count of payments (120) restarts with a consolidated loan. Therefore, you would want to consolidate early, and then be sure you are set up for an income based repayment plan. Unless you have FFEL or Perkins loans, there may be no reason to consolidate, and then only those.
If you consolidate more than $7,500, your repayment period will automatically be extended. For example, if you consolidate between $20,000 and $39,999, you will be given a 20 year repayment. Although you can still make larger than required payments, paying for a longer period will result in more total interest paid. A Direct Consolidation Loan has a fixed interest rate for the life of the loan. This rate is based on the weighted average of the interest rates one the loans being consolidated, rounded up to the nearest one-eighth of 1%.
It is critical that borrowers continue making payments, if required, to the holders or servicers of the loans with pending consolidation, until the consolidation servicer indicates that the underlying loans have been paid off.
Private (Alternative) Loan Consolidation
There are a few lenders who offer private loan consolidation. Now, you may find lenders who offer combined consolidation of federal and private loans. We cannot make specific recommendations. Before considering consolidation of federal loans with private loans, consider the possible loss of benefits, such as loan forgiveness and various income based repayment options.
If you choose to consolidate your private loans, consider these questions:
- Will you be eligible for deferments and what are they? Are you eligible for student deferment while enrolled as a graduate student? Will you be eligible for forbearance?
- Who will you be making payments to?
- Do you have a choice of repayment plans?
- Will the company service their own loans?
- Will they sell your loans to someone else?
- Have you checked this company out at the Better Business Bureau website www.bbb.org?
- Will you have a grace period?
- How many years will your repayment period be?
- Does the consolidation company offer borrower benefits? What are the benefits, and what percentage of borrowers actually earn these benefits?
- Will your loan have a pre-payment penalty?
Revised March 2017