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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., Stafford, Grad PLUS, Perkins, Health Professions, Nursing Student). You may consolidate either all, or some of, your federal loans.

  • 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 at 8.25%.

  • Stafford Loans disbursed before July 1, 2006 have variable interest rates. The rate used in calculating the weighted average is the variable rate in effect at the time of consolidation. As of July 1, 2008, this rate will drop significantly to 3.61%, for loans in grace period. (By contrast, Stafford Loans disbursed between July 1, 2006 and June 30, 2008 have fixed interest rates of 6.8%.)

  • Receive a single monthly bill for all loans you consolidate.

  • Lock in a fixed interest rate for your entire repayment period.
    If you borrowed a Stafford Loan prior to July 1, 2006, it probably has a variable interest rate. 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 here.

  • 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:

    • Stafford and Grad PLUS Loans already provide for extended or graduated payment options. Check with your lender for further details on these options.

    • If you qualify for income-based repayment (IBR) your monthly payments will be capped. To read about IBR, click here.

  • 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 Stafford, 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 Forginess Provisions, click here.
  • You will lose any benefits, such as cancellation benefit on your underlying loans
    You will lose any benefits, such as cancellation benefit on your underlying loans. It is especially important to review the cancellation provisions of Perkins Loans, and Stafford 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 them. Review general information about cancellation provisions at: http://www.finaid.org/loans/forgiveness.phtml.

  • You will lose any lender-specific borrower benefits on your underlying Stafford or Grad PLUS Loans
    Some lenders offer loan benefits, either principal reductions or interest rate reductions, which may reduce the overall amount of your repayment.  When you consolidate you pay off the original loan and any benefits associated with that loan are lost.

  • 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 (Stafford Loans) or nine months (Perkins Loans) before you must start making payments on your student loans. The PLUS Loans do not have a grace period.

If you decide to consolidate, you may find that many lenders are no longer in the consolidation business. To find consolidation lenders, see http://www.finaid.org/loans/educationlenders.phtml.

To consolidate

  • Contact a lender from the consolidation lenders listed in the above link, or search out a consolidation lender of your own choosing.


  • Consolidate into a Federal Direct Loan
    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/ 
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