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Student Loan Consolidation

Loan consolidation can simplify the loan repayment process by allowing the borrower to combine several types of federal student loans and repayment schedules into one. The repayment process is simplified because there is only one per month. The interest rate on consolidated loans is often lower than what is currently paid. Borrowers in default on a federal student loan are eligible for a consolidation loan if certain conditions are met.

Note that a lender cannot refuse to consolidate your loans because of

  • - The number or type of eligible loans the borrower wants to consolidate
  • - The type of school attended
  • - The interest rate that would be charged on a consolidation loan
  • - The types of repayment schedules available

Loans That Can be Consolidated

  • - Direct Subsidized and Direct Unsubsidized Loans
  • - Subsidized and Unsubsidized Federal Stafford Loans
  • - Direct PLUS Loans
  • - PLUS loans from the Federal Family Education Loan (FFEL) Program
  • - Federal Nursing Student Loans
  • - Supplemental Loans for Students (SLS)
  • - Federal Perkins Loans
  • - Health Education Assistance Loans (HEAL)
  • - some existing consolidation loans

Some private lenders also consolidate loans, but these cannot be consolidated with federal loans. The Loan Origination Center’s Consolidation Department offers a complete list of loans eligible for Direct Consolidation.


Consolidation Periods

Federal loans can be consolidated during periods of repayment, grace, deferment, and forbearance. Loans cannot be consolidated while the borrower is still in school. If you want to consolidate a defaulted loan, you have to either make satisfactory repayment arrangements on the loan with your current loan servicer before you consolidate, or repay your new Direct Consolidation Loan under the:

  • - Income-Based Repayment Plan
  • - Pay As You Earn Repayment Plan
  • - Income-Contingent Repayment Plan
  • Advantages vs. Disadvantages of Federal Loan Consolidation


    • - One Monthly Payment
    • - Lower Monthly Payments
    • - Longer Repayment Period
    • - Fixed Interest Rate


    • - Greater Total Money Repaid - Interest accumulated over a longer period when repayment period is extended.
    • - Loss of Borrower Benefits - Borrower loses cancellation benefits on Perkins Loan. Interest rate discounts and principal rebates can also be lost.

    Interest Rates and Fees

    The interest rate for federal 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 the borrower consolidates, rounded up to the nearest 1/8%. The interest rate does not exceed 8.25%. The consolidation rate is fixed for the life of the loan, which protects the borrower from future increases in variable rate loans but does now allow them to benefit from future decreases in variable rates. There are no application fees or prepayment penalties.


    • - Repayment begins within 60 days of the loan disbursement
    • - Payback term ranges from 10-30 years depending on the amount of educational debt being repaid and selected repayment options
    • - Loans can be repaid in a shorter amount of time is borrower chooses to do so
    • - Once consolidated, federal loans cannot be unconsolidated

Last Edited: December 2015

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