|Federal Loan Consolidation
Whether or not you should consolidate
depends on your future educational and employment
plans, as well as under what provisions your current
loans are subject. For in-depth information, see http://www.finaid.org/loans/consolidation.phtml. However,
you may first want to review the outlined advantages
and disadvantages of consolidation presented below.
Federal Loan Consolidation involves taking
out a new Consolidation Loan to pay off existing
federal loans (i.e., Federal Direct, Federal Direct Grad PLUS, Perkins,
Health Professions, Nursing Student). You may
consolidate either all, or some of, your federal
The interest rate on a Federal Consolidation
Loan is the weighted average of the interest
rates on the loans being consolidated, rounded
up to the nearest 1/8 of a percent and capped
a single monthly bill for all loans you consolidate.
- Lock in a fixed interest rate
for your entire repayment period.
You can lock it in for your entire
repayment period if you consolidate after
July 1, when the new variable rates are changed. For
more information on interest rates, click
- Reduce your monthly payment
Depending on the amount you consolidate, extend
your repayment period up to 30 years, and lower
your monthly payment.
Note: You may not need to consolidate
to reduce your monthly payment:
- Federal Direct and Federal Direct Grad
PLUS Loans already provide for extended
or graduated payment options. Check with
your lender for further details on these
- If you qualify for income-based
repayment (IBR) your monthly payments will
be capped. To read about IBR, click
- Have your loans forgiven under the new Public
Service Forgiveness Provisions
The new Public Service Forgiveness provisions
apply only to Federal Direct Loans (not to
FFELP Loans, such as Federal Direct, Federal Direct Grad PLUS, etc.).
Therefore, if you think you may be eligible
for Public Service Forgiveness, you MUST consolidate
your existing loans into a Federal Direct Consolidation
Loan after July 1 to be eligible. To
read about Public Service Forgiveness Provisions, click
You will lose any benefits,
such as cancellation benefits on your underlying
You will lose any benefits, such as cancellation
benefits on your underlying loans. It is
especially important to review the cancellation
provisions of Perkins Loans, and Federal Direct
Loans where applicable, before determining
whether to consolidate them. If you think
there’s a good chance you would qualify
for any of the provisions, you should not
consolidate. Review general information
about cancellation provisions at: http://www.finaid.org/loans/forgiveness.phtml,
and Perkins Loan cancellation at http://www.sfs.upenn.edu/loan-repayment-information/Perkins-Cancellation.pdf
You will lose any lender-specific borrower
benefits on your underlying Federal Direct or Federal Direct Grad
Some lenders offer loan benefits, either
principal reductions or interest rate reductions,
which may reduce the overall amount of your
you consolidate you pay off the original loan
and any benefits associated with that loan
You will lose your grace periods
on your loans.
At consolidation, you will lose your grace
period and enter repayment immediately. Therefore,
if you decide to consolidate, wait until the
latter part of your grace period to do so.
However, you should allow 8-10 weeks for processing.
A grace period is a short time period after
graduation during which the borrower is not
required to begin repaying his or her student
loans. The grace period may also kick in if
the borrower leaves school for a reason other
than graduation or drops below half-time enrollment.
Depending on the type of loan, you will have
a grace period of six months (Federal Direct Loans)
or nine months (Perkins Loans) before you must
start making payments on your student loans.
The Federal Direct PLUS Loans do not have a grace period.
|Most lenders are no longer offering consolidation loans. You can still consolidate your federal loans with the U.S. Department of Education's Federal Direct Loan Consolidation Program.
To obtain a federal direct consolidation
loan, call the US Department of Education
at 1-800-557-7392 (TDD 1-800-557-7395)
or visit http://loanconsolidation.ed.gov/