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Student Loan Consolidation

A Federal Consolidation loan is a loan which enables eligible borrowers 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 loan refinance. 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, and FFELP/Direct Grad PLUS. An eligible borrower may consolidate loans via the Department of Education’s Federal Direct Loan Consolidation Program. You may be able to consolidate your 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.

Eligibility Requirement for Student Loan Consolidation

A borrower is required to have at least one Direct Loan or Federal Family Education Loan (FFEL) that is in grace, repayment, deferment or default status. Borrowers who are enrolled in school cannot consolidate loans that are in an in-school status. Loans in an in-school status have not yet entered or used up the 6-month grace period entitlement.

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%.

Considering Loan Consolidation?

  1. 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.
  2. 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.
  3. 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%. 
  4. 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.

 The different Repayment Plans are:

  • Standard Repayment Plan: a repayment term ranges from 10 years up to 30 years. Your monthly payments are fixed and will be at least $50.
  • Graduated Repayment Plan: your monthly payments start out low and increase every two years. The repayment term is 10 to 25 years.
  • Extended Repayment Plan: your loan indebtedness must be at least $30,000 to be eligible for this plan.Repayment term is up to 25 years. There are two payment options within this plan a) Fixed Monthly Payment Option b) Graduated Monthly Payment Option. Under the Fixed payment option, you have a monthly payment of at least $50 and you make fixed payments until your loan balance is zero. With the Graduated Monthly Payment Option, your monthly payment starts out low and increases every two years. The minimum payment will be equal to the monthly interest accrued or at least $50, whichever is greater.
  • Income Contingent Repayment Plan (ICR): A repayment term is up to 25 years. Your monthly payment is determined by your annual income, balance and household/family size.
  • Income-Based Repayment Plan (IBR): your monthly payment is based on factors such as household/family size and annual income. To qualify for this plan, you must be experiencing a partial financial hardship. This plan can only be changed to the Standard Plan. Repayment term is up to 25 years.

Direct Loan Consolidation Repayment Options

Direct Consolidation Loan Application Processes

The Department of Education currently has two Direct Consolidation Loan application processes. (There are electronic and paper options available through both processes.) Use the information below to determine which process you would use to apply for a Direct Consolidation Loan.

1. Direct Consolidation Loans Website

Use this process if one of the following applies to you: 

  • You have one or more defaulted federal education loans that are assigned to ED for collection.
  • You need to take action on an application that you submitted via the Direct Consolidation Website prior to Jan. 2, 2014.
  • You need to take action on an applicationt hat you submitted via the Direct Consolidation Loans Website on or after Jan. 2, 2014.
To apply select this link: Direct Consolidation Loans Website

Use this process if one of the following applies to you:

  • You have no defaulted federal education loans.
  • You have one o more defaulted federal education loans, none of which are assigned to ED for collection.
  • You need to take action on an application that you submitted via StudentLoans.gov on or after Jan. 2, 2014.  
To apply select this link StudentLoans.gov.

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.


Frequently Asked Questions (FAQS):

The Direct Consolidation website provides a FAQs page for borrowers. Selecting this link will allow you to view the Department of Education’s FAQs page for more information 

You may also find additional FAQs and information including a glossary of terms via this link  Loan Consolidation Additional Information .

To inquire about your consolidation options, you may contact Federal Direct Loan Consolidation Loans Customer Service at (800) 557-7392.

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.

This resource serves only as a basic guide about Federal Consolidation loans. It includes information selected from different sources including Finaid.org, Great Lakes Educational Loan Services and the Department of Educations’ Direct Consolidation loans website. 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 history.