Student Loan Consolidation
A Consolidation loan 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 only one payment must be made each month. Often, the interest rate on the consolidation loan is lower than what is currently paid. Even if a borrower is in default on a federal student loan, they might be eligible for a consolidation loan if certain conditions are met.
Note that a lender may not 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 May be Consolidated
- - Subsidized and Unsubsidized Direct Stafford Loans
- - Perkins Loans
- - PLUS Loans
- - Nursing Student Loans (NSL)
- - Supplemental Loans for Students (SLS)
- - Health Education Assistance Loans (HEAL)
- - Health Professions Student Loans (HPSL)
- - Loans for Disadvantaged Students (LDS)
Some private lenders also consolidate loans, but these cannot be consolidated with federals loans. The Loan Origination Center’s Consolidation Department can provide you with a complete list of loans eligible for Direct Consolidation.
Federal loans may be consolidated during periods of repayment, grace, deferment, and forbearance. Loans may not be consolidated while the borrower is still in school.
Advantages vs. Disadvantages of Federal Loan Consolidation
- - One Monthly Payment
- - Lower Monthly Payments
- - Longer Repayment Period
- - Fixed Interest Rate
- - Greater Total Money Repaid - Interest accrues over a longer period when repayment period is extended.
- - Loss of Borrower Benefits - Borrower may lose cancellation benefits on Perkins Loan. Interest rate discounts and principal rebates may 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 one-eighth of a percent. 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 prevents them from benefiting 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 on selected repayment options
- - Loans may be repaid in a shorter amount of time is borrower chooses to do so
- - Once consolidated, federal loans may not be unconsolidated
Last Edited: May 2015
Latest College & Financial Aid News
August 27, 2015
by Susan DutcaIn the midst of Wednesday's tragic shooting and killing of WDBJ7 journalist Alison Parker and cameraman Adam Ward by alleged gunman and former WDBJ-TV reporter Vester Lee Flanagan, Parker's alma mater, James Madison University is accepting donations for the Alison Parker Memorial Scholarship. Similarly, Patrick Henry Community College, where Parker received her associate's degree, is accepting [...]
August 25, 2015
by Susan DutcaStudents are notorious for avoiding summer reading lists – whether they'd rather spend time outdoors or simply find the list dull, many walk into the first day of class without having read the book title. However, incoming freshmen at Duke University are boycotting and refusing to read Alison Bechdel's family tragicomic Fun Home - they claim that the "pornographic" graphic novel conflicts with [...]
August 24, 2015
Chances are if you’re on scholarships.com, you probably care about boosting your application to scholarships or colleges. The standardized test can be a huge plus for good test takers or a major stressor for others. Here are some general guidelines to help you make your testing plan and decisions easier. Timing. There are many rumors about what dates have a better curve but [...]