Federal Loan Consolidation
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Direct Loan Consolidation
Who is eligible?
To qualify for a Direct Consolidation Loan, borrowers must have at least one Direct Loan or Federal Family Education Loan (FFEL) that is in grace, repayment, deferment or default status. Loans that are in an in-school status cannot be included in a Direct Consolidation Loan.
Borrowers can consolidate most defaulted education loans, if they make satisfactory repayment arrangements with the current loan holders or agree to repay their new Direct Consolidation Loan under the Income Contingent Repayment Plan.
Borrowers who do not have Direct Loans may be eligible for a Direct Consolidation Loan if they include at least one FFEL Loan and have been unable to obtain a Federal Consolidation Loan with a FFEL consolidation lender or have been unable to obtain a Federal Consolidation Loan with income-sensitive repayment terms acceptable to them or intend to apply for loan forgiveness under the Public Service Loan Forgiveness Program.
Borrowers who have only a Direct Consolidation Loan cannot consolidate again unless they include an additional loan.
NOTE: The Direct Loan Servicing Center has information on the Public Service Loan Forgiveness Program.
Is There a Credit Check Before Approving Me for a Federal Consolidation Loan?
No. There is no credit check to obtain a Federal Consolidation Loan. However, you must not be in default on a Federal Student Loan.
Eligible for Federal Loan Consolidation
- Federal Stafford Loans (subsidized and unsubsidized)
- Federal Direct Loans
- Federal Perkins Loans
- Federal Insured Student Loan (FISL)
- Auxiliary Loan to Assist Students (ALAS)
- Federal PLUS Loans (if you are the borrower)
- Federal Supplemental Loans for Students (SLS)
- National Direct Student Loans (NDSL)
- Loans for Disadvantaged Students (LDS)
Not Eligible for Federal Loan Consolidation
Non-federal education loans such as private loans, school-based loans or loans from family members are not eligible for consolidation under the Federal Consolidation Loan program.
Interest Rate Calculation
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.
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 6.62 percent Direct or FFEL Stafford Loan.
For interest rates in effect from July 1, 2008 through June 30, 2009 for variable rate Direct Subsidized Consolidation Loans, Direct Unsubsidized Consolidation Loans, Direct PLUS Consolidation Loans, Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans click here.
Benefits of Federal Loan Consolidation
- A single and lower monthly payment
- Convenience - easier to manage one loan versus loans with multiple lenders
- Consolidate undergraduate and graduate federal loans
- Easy on-line application process
- No pre-payment penalty
- No loan fees
- Deferment and forbearance options
- Lender repayment incentives
- Extended repayment periods
- Eligible for the federal interest deduction for education loans (assuming students meet the IRS income eligibility requirement)
- More disposable income each month due to a lower monthly payment
Disadvantages of Federal Loan Consolidation
Reducing the monthly payment and extending repayment terms may increase the total interest charged on the loan. Borrowers who consolidate in the grace period will lose any grace period that would otherwise remain if they had not consolidated their loan. If federal loan interest rates increase, consolidating low interest rate loans may increase overall repayment costs, and the borrower may be locked into a higher interest rate.
Locating Your Federal Loan Lenders
You can locate prior and current federal loans, including prior consolidation loans, by accessing National Student Loan Data Systems (NSLDS) at http://nslds.ed.gov. This website has information on loan amounts, outstanding loan balances, loan statuses and disbursements. In order to access your records on the NSLDS web site you will need to provide your social security number, the first two digits of your last name, your date of birth and your FSA ID number.
Federal Loan Consolidation Repayment Options
Standard Plan - This plan allows you to make equal payments over the term of the loan. Each payment includes both principal and interest. This loan has the highest initial monthly payment, but results in the lowest total interest paid over the life of the loan.
Graduated Plan - This plan allows for your payments to start out low and increase over time. This plan allows for interest-only payments for the first quarter or third of the total repayment period, followed by increased payments for the remaining term of the loan.
Income-Sensitive Plan - This plan bases loan payments on a percentage of your gross monthly income and the amount borrowed. Repayment terms will vary based on the percentage you request, your income, and the total loan amount.
Extended Plan - Under an extended repayment schedule you can repay your Federal Consolidation Loan over a 30-year period, on a fixed or graduated payment plan, if you have federal loans totaling in excess of $60,000.
When Does Repayment Begin?
Once your loan has been funded, you will receive a Federal Loan Consolidation Disclosure Statement and Repayment Schedule from the servicer of your new Consolidation loan. Thirty days from the date your loan is funded, you are required to begin repayment according to that schedule.
Can I Switch Repayment Plans?
Yes. Simply contact your servicer to switch plans. There are no extra costs or penalties to switch plans, and you can do so once a year.
Maximum Repayment Terms
Current federal regulations state that the maximum length of the repayment term is based on the sum of the loans being consolidated, and the unpaid balance on other student loans. Consolidation offers extended repayment periods from ten to thirty years, depending on your cumulative debt. Your consolidation lender will calculate the actual repayment term.
Once I Have Taken Out A Federal Consolidation Loan, Can I Add Any New Loans To It?
Yes. Eligible loans may be added to your Federal Consolidation loan within 180 days of the date that the consolidation loan was funded. To add a loan, contact the servicer.
The Office of Financial Assistance recommends that you carefully evaluate the federal loan consolidation program, and make a decision based on your individual need.