Student Loan Consolidation
A Federal Consolidation loan is a loan which enables eligible students/parents to merge all or some of their loans into a new single loan. This single loan is used to pay off the existing smaller student loans. In a sense, a consolidation loan is akin to consolidating other debts into a mortgage via a refinanced loan. Instead of making multiple payments to various lenders, an individual can now make one payment to the lender of the refinanced loan. Federal loans which can be consolidated include loans under the Federal Family Education (FFEL) Loan and Direct Loan Programs. Some examples of loan types eligible for consolidation are: FFELP/Direct (subsidized and unsubsidized), FFELP/Direct Parent PLUS, FFELP/Direct Grad PLUS. An eligible borrower has the option to consolidate loans via the Department of Education’s Federal Direct Loan Consolidation Program.
Some lenders offer consolidation loan options for private loans. However, private loans cannot be consolidated with federal loans. For more information about consolidation options for private loans, please contact your private loan lender.
The interest rate on a federal consolidation loan is calculated as the weighted average of the interest rates on the loans being combined into the consolidated loan. This interest rate is rounded up to the nearest 1/8th of a percent and capped at 8.25%.
This document serves only as a basic guide about Federal Consolidation loans. It includes common questions and answers selected from different sources including Finaid.org, Great Lakes Educational Loan Services and the Department of Educations’ Direct Consolidation loans website. Additional resources are listed on the last page. This document is not an endorsement by University of Wisconsin Milwaukee for a borrower to consolidate his/her loans. Before you consolidate your student loans, be certain to thoroughly evaluate your options. Always communicate first with the lender of your student loans before making any decisions which may impact your student loan records.
Factors to evaluate if you are considering Loan Consolidation:
- If you are making multiple student loan payments to different lenders, consolidating your loans into one monthly payment with one lender maybe beneficial to you.
- If you are struggling with making your monthly payments, you should communicate with your lender first about potential options. In some instances if deferment and forbearance are not available options, an individual may benefit from consolidating his/her loans to prevent loans from defaulting.
- If you have variable interest rate student loans, you may benefit when you consolidate your loans into one fixed rate loan. The interest rate on a federal consolidation loan is calculated as the weighted average of the interest rates on the loans being combined into the consolidated loan. This interest rate is rounded up to the nearest 1/8th of a percent and capped at 8.25%.
- If you are close to paying off your student loans, consolidating your student loans may not be beneficial to you. When you consolidate your loans you may pay more over time in total interest on your student loans. It is important to take this into consideration before you consolidate
Frequently Asked Questions:
Am I eligible for loan consolidation?
To qualify for a Direct Consolidation Loan, borrowers must have at least one Direct Loan or Federal Family Education Loan (FFEL) that is in grace, repayment, deferment or default status. Loans that are in an in-school status cannot be included in a Direct Consolidation Loan.
I am delinquent or defaulted on my student loans, am I eligible for loan consolidation
If you are delinquent or have defaulted on your student loans, you must contact your lender to inquire if you are eligible to consolidate. Borrowers who have defaulted on their student loans may be eligible to consolidate into the Direct Consolidation Loan Program via the Department of Education.
Will I be charged a fee to consolidate?
There are no fees charged for loan consolidation.
Which repayment plan should I select?
Consolidation loans allow borrowers several flexible repayment options in addition to the standard repayment plan of 10 years. An individual is not required to choose the standard repayment plan however it is important to note that when you choose to extend your payments beyond the standard ten year plan you will pay more in total interest overtime. For borrowers who do not have loans in deferment or forbearance, repayment on a consolidation loan begins within 60 days after the consolidation loan has disbursed.
To inquire about your consolidation options, you may contact Federal Direct Consolidation Loans Information Center Customer Service at (800) 557-7392.
Additionally, you may visit the websites below. Please note that there are other websites that provide loan consolidation literature.
- http://www.loanconsolidation.ed.gov
- http://www.finaid.org/loans/consolidation.phtml
- http://www.mygreatlakes.org
For detailed information about your student loan history, please visit http://www.nslds.ed.gov. The National Student Loan Data System (NSLDS) is a database of information on loan and/or grant amounts, outstanding balances, loan statuses, and disbursements. In order to access the database, you will need your SSN number, your personal identification number (PIN) given by the Department of Education, first two digits of your last name and your date of birth. The loan history lists outstanding principal balance (s). Selecting the “loan detail” tab for a specific loan will provide additional data including the interest rate and lender information. For assistance call (800) 999-8219 or you may send an email to nslds@ed.gov.
Special Direct Consolidation Loan Opportunity Offered from January – June 30, 2012
On October 25, 2011, the Obama Administration announced several steps it is taking to increase college affordability by making it easier to manage student loan debt. Key initiatives include a short-term consolidation opportunity that will be offered through the William D. Ford Federal Direct Loan (Direct Loan) Program. This special consolidation opportunity will be offered to eligible borrowers by the Department of Education (the Department) from January - June 30, 2012. The special consolidation initiative will offer eligible borrowers who currently have at least one Direct Loan Program loan or Department-held (also referred to as ED-held) Federal Family Education Loan (FFEL) Program loan and at least one commercially-held FFEL Program loan the opportunity to bring all of their loans together with one servicer by consolidating their commercially-held FFEL Program loans into a Special Direct Consolidation Loan. Currently, these borrowers have at least two servicers and must make at least two separate monthly student loan payments. After consolidating through this special opportunity, a borrower will have one federal loan servicer and one payment for all of the borrower's Direct Loan and FFEL program loans. Special Direct Consolidation Loans are not the same as traditional consolidation loans offered under the William D. Ford Federal Direct Loan (Direct Loan) Program. Eligible borrowers will be contacted by a Department of Education servicer starting in January 2012.
For more information about Special Direct Consolidation Loans including eligibility requirements, select this link http://studentaid.ed.gov/PORTALSWebApp/students/english/specialconsolidation.jsp