Student Financial Services
Student Financial Services


Financial Aid: Loans

Managing Your Loans
Prior to Repayment
During Repayment
Loan Consolidation
Loan Resources

 





CONSOLIDATION
You can combine all of your federal student loans into a single new loan with a Direct Consolidation Loan.  The loans included in the consolidation loan will be paid when the consolidation loan disburses.  You will receive a new repayment schedule based on the amount of your consolidation loan, the loan interest rate and the repayment plan chosen.  Standard, graduated, extended, income-contingent and income-driven repayment plans are available.  Consolidation loans provide deferment and forbearance options.

Loan consolidation is an individual decision that requires careful consideration and research because it has long-term implications. Consolidation may be a helpful strategy for successful repayment if you

  • need to reduce your total monthly loan payments.
  • have multiple loan servicers.
  • have loans with variable interest rates. 
  • wish to make FFEL, Perkins and Nursing loans eligible for Public Service Loan Forgiveness.

The following information will help you make an informed decision about loan consolidation:

Potential Reduction of the Minimum Monthly Payment
Potential Increase in Total Interest Paid
Eligibility
Interest Rate
Application Process
Perkins Loan Considerations
Consolidation Example
Calculators
Private Loan Consolidation

 

Potential Reduction of the Minimum Monthly Payment
The minimum monthly payment amount may be lower than the total minimum monthly payments of loans that are not consolidated because the repayment term on the consolidation loan may be extended. Since you may be going from a 10-year repayment period to a 12, 15, 20, or even a 30 year repayment period, you can anticipate a reduction in your minimum monthly payment. See example.

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Potential Increase in Total Interest Paid
A consolidation loan may have a repayment term beyond ten years depending upon the total amount of the loan.  You may pay more in interest for your loan if you only make the minimum monthly payment.  You may pay more than the minimum monthly payment to pay off your loan more quickly and reduce the total amount of interest over the life of your loan. The Direct Consolidation Loan application will include estimated repayment information under eligible repayment plans. See example.

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ELIGIBILITY
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.

  • Borrowers who do not have Direct Loans may be eligible for a Direct Consolidation Loan if they include at least one FFEL Loan and have been unable to obtain a Federal Consolidation Loan with a FFEL consolidation lender or have been unable to obtain a Federal Consolidation Loan with income-sensitive repayment terms acceptable to them or intend to apply for loan forgiveness under the Public Service Loan Forgiveness Program.
  • Borrowers who have only a Direct Consolidation Loan cannot consolidate again unless they include an additional eligible loan.
  • Federal Nursing Student loans are eligible to be included in a Direct Consolidation Loan.
  • Borrowers who are delinquent or in default may have certain requirements to meet before they may consolidate their loans. Contact your loan holder or servicer for more information.
  • Eligible loans are borrower specific; students cannot include a parent PLUS loan in their Direct Consolidation loan.
  • Alternative (private) loans are not eligible for a Direct Consolidation loan.

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INTEREST RATE
The interest rate for a Direct Consolidation loan is based on the weighted average of the loans that are consolidated rounded up to 1/8 of a percent.  There is no cap on the interest rate of a Direct Consolidation Loan. Borrowers who have variable rate Stafford and PLUS loans may wish to wait until the new variable interest rates are announced to evaluate whether to consolidate their loans before or after the new variable rates are effective.  See example.

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APPLICATION PROCESS
Application information is available at StudentAid.gov; a promissory note must be completed and signed to complete your application. The consolidation loan disburses approximately 60-90 days after the application is completed.

The Direct Consolidation Loan online application (available at StudentLoans.gov will incorporate your cumulative loan records maintained in the National Student Loan Data System (NSLDS).  Federal Nursing student loans are eligible to be included in a Direct Consolidation loan but are not included NSLDS and must be added to be included.

Continue to make payments on your loans or you may request a period of forbearance until you are notified that the disbursement of your Direct Consolidation Loan has been completed. 

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PERKINS LOAN CONSIDERATIONS
The Perkins loan forgiveness (cancellation) options are not available for the Perkins loan amount included in a consolidation loan. If you anticipate eligibility for Perkins loan forgiveness (cancellation) you may withhold the loan(s) from consolidation. In the future, if you don't qualify for forgiveness on the loan, or still have a balance remaining after maximum forgiveness has been received, you can consolidate the loan and the existing consolidation loan.

Perkins loans are unsubsidized portions of a consolidation loan; the interest subsidy of an unconsolidated Perkins loan is not retained.

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CONSOLIDATION EXAMPLE

Loan Type

Aid Year

Amount

Interest Rate*

Direct Subsidized

2011-12

3,500

3.4%

Direct Subsidized**

2012-13

4,500

3.4%

Direct Subsidized**

2013-14

5,500

3.86%

Direct Subsidized

2014-15

5,500

4.66%

Direct Unsubsidized**

2011-12

2,000

6.8%

Direct Unsubsidized**

2012-13

2,000

6.8%

Direct Unsubsidized**

2013-14

2,000

3.86%

Direct Unsubsidized**

2014-15

2,000

4.66%

 

Amount

Estimated Interest Rate

Estimated Monthly Payment

Estimated Total Interest Paid

Estimated Total Paid

Direct Loan Total                 (Standard Repayment)

27,000

4.404%      (weighted average)

279

6,421

33,421

Perkins Loan

2,000

5.0%

40

248

2,248

Estimated Total (All Loans)

29,000

 

319

6,669

35,669

Direct Consolidation Loan (Standard Repayment)

29,000

4.5%

183

15,032

44,032

Comparison

136                 less per month

8,363 additional interest paid

 

* Interest rates are specific to each loan. 
** Assumes all accrued interest is paid prior to entering repayment. 
Source:  MyFedLoan.org Consolidation Estimator

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CALCULATORS
A calculator can help you evaluate the effect of consolidation for your loans.  Check for calculators on your loan servicer website(s) as well.

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PRIVATE CONSOLIDATION LOANS
Some lenders offer private consolidation loans. These private consolidation loans vary from lender to lender. If you wish to pursue a private consolidation loan, be sure that you fully understand the calculation of interest, terms, and borrower benefits.   Additional information regarding private consolidation loans is available from FinAid.org and from the lender offering a private loan consolidation product.

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Last Updated: 2/19/2015


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