Loan Consolidation allows you to refinance any or all of your outstanding federal student loans and create a single new loan with one monthly payment. The new loan will have a fixed interest rate , new terms, and may have an extended repayment period of up to 30 years. Any repayment benefits that existed on the underpaying loans will no longer exist for the consolidation loan.
Following loans are eligible for consolidation: Direct Loans (Subsidized, Unsubsidized and PLUS), Federal Family Education Loan Program/ FFELP Loans (Stafford, Unsubsidized Stafford and PLUS), SLS, HEAL and Perkins. We recommend that you leave Perkins loans out of your consolidation, not to lose your forgiveness options for this program.
To be eligible for loan consolidation you:
Since subsidized loans do not accrue interest while in grace, it is important to maximize your interest savings by not consolidating too early. Some lenders/servicers will allow borrowers to keep their grace period even if the application is submitted during the first six months after graduation. Borrowers may request to “hold” the application through the end of their grace period. Once the consolidation is processed and the loan disburses, the grace period is forfeited and payments will begin.
Before you decide to consolidate, consider the available alternatives:
One repayment option that students may overlook is extending the repayment period without consolidating the loan. For balances greater than $30,000, this is a viable option. Extended repayment will allow you to lower your monthly payment while maintaining borrower benefits which apply to your Stafford and/or PLUS loans.
Students who choose extended repayment option are able to reduce the total interest cost by almost $1000 when compared to consolidation.
In most cases, consolidation does not disqualify a borrower from certain deferment of forbearance options. However, borrowers may not qualify for a military deferment on aconsolidation loan if they include at least one loan disbursed prior to July 1, 2001. Following are the deferment and forbearance options that are available:
Borrowers will need to contact their consolidation lender/servicer in order to apply for any type of deferment or forbearance.
You apply for a Direct Consolidation Loan through StudentLoans.gov. This process offers both electronic and paper options. You can complete the electronic application, as explained below or you can download and print a paper application from StudentLoans.gov for submission by U.S. mail.
Once you sign in to StudentLoans.gov using your personal identifiers and Federal Student Aid PIN, you will be able to electronically complete the Federal Direct Consolidation Loan Application and Promissory Note. The electronic application on StudentLoans.gov consists of the following five steps:
1. Choose Loans & Servicer
2. Repayment Plan Selection
3. Terms & Conditions
4. Borrower & Reference Information
5. Review & Sign
After you submit your application electronically via StudentLoans.gov or by mailing a paper application, the consolidation servicer selected will complete the actions required to consolidate your eligible loans. The consolidation servicer will be your point of contact for any questions you may have related to your consolidation application.
It is critical that you continue making payments, if required, to the holders or servicers of the loans you want to consolidate until your consolidation servicer informs you that the underlying loans have been paid off.