Should I Consolidate my Student Loans?
Everyone who has more than one student loan gets here sooner or later, asking
the question "does consolidating my loans into one larger loan make sense?" and that's what this
Web page will help you ascertain.
Here are some factors you
should consider when deciding if consolidation your student loans is right for you.
What are the interest rates on your loans? If a Direct Consolidation Loan offers
you a lower rate than your current loans, you may want to consolidate. Currently, the
interest rate for a Direct Consolidation Loan is based on the weighted average
interest rate on the loans being consolidated, rounded to the next nearest higher
one-eighth of one percent. This rate is fixed for the life of the loan and cannot
exceed 8.25 percent. Use our
online calculator to find out what your weighted average interest
rate would be if you consolidate with us.
Are your monthly payments manageable? If you have trouble meeting your
monthly payments, have exhausted your deferment and forbearance options, and/or want to
avoid default, consolidation may help you. Use our
online calculator to find out what your monthly payments would be under each of
our repayment plans.
How much are you willing to pay over the long term? Like a home mortgage or a car
loan, extending the years of repayment increases the total amount you have to repay.
How many payments do you have left on your loans? If you are close to paying off
your student loans, it may not be worth the effort to consolidate or extend your
payments.
What consolidation loan benefits do your current lenders offer?
Check with the loan holders currently servicing your loans to see if they can offer
terms and repayment plans that meet your needs better than a Direct Consolidation Loan.
How do I benefit?
A Direct Consolidation Loan allows you to combine one or more of your federal
education loans into a new loan that offers you several advantages.
Lower Interest Rate For In-School and In-Grace Consolidation
Borrowers who have a Direct Loan or FFEL loan in an
in-school or grace period at the time we receive their consolidation application, may benefit from
a lower fixed interest rate on the new Direct Consolidation Loan. The difference
between a borrower's interest rate during their in-school and/or grace period and during
their repayment period can be as high as 0.6 percentage points.
In-school consolidation is available only with Direct Consolidation Loans.
One Lender and One Monthly Payment
With only one lender and one monthly bill, you will find it is easier to manage your debt.
You will have only one lender, the U.S. Department of Education, for all loans included in
your Direct Consolidation Loan.
Flexible Repayment Options
You can choose from
four
different plans to repay your Direct Consolidation Loan, including an Income
Contingent Repayment Plan. These plans are flexible to meet the different needs of
borrowers. With a Direct Consolidation Loan, you can
switch repayment plans at anytime.
Grace Period
If you consolidate while in-school, you may receive a 6-month
grace period before
repayment begins.
No Minimum or Maximum Loan Amounts or Fees
Direct Consolidation Loans do not exclude anyone based on the size of their loan
debt! In addition, consolidation is free.
Varied Deferment Options
Direct Consolidation Loans offer several
deferment options. If you have exhausted the deferment options on your current
Federal education loans, a Direct Consolidation Loan could renew those deferment
options. In addition, you may be eligible for additional deferment options if you have
an outstanding balance on an FFEL made before July 1, 1993, when you obtain your
first Direct Loan.
Reduced Monthly Payments
A Direct Consolidation Loan may lower your monthly payment. The minimum monthly
payment on a Direct Consolidation Loan may be lower than the payments on your
federal education loans.
Retention of Subsidy Benefits
You will keep any subsidies on your old loans.
Comparison
charts show the benefits of the various federal education loan programs. Look at
these charts carefully to compare the benefits of your current loan(s) with the benefits
of a Direct Consolidation Loan.
Am I Eligible to Consolidate my Student Loans?
In order to determine a borrower's eligibility for a Direct Consolidation Loan,
the loan status
(in-school, out of school, in
default) and type (student, parent, or married) must first be established.
The following will outline the eligibility requirements for both
student and
parent borrowers in each status and address concerns for married borrowers.
The specific eligibility criteria that apply to borrowers attempting
to consolidate defaulted loans is discussed under a separate FAQ.
- STUDENT BORROWERS
When applying for a Direct Consolidation Loan, borrowers must meet
the eligibility requirements for their status: in-school, out of school, or in
default.
In-School
Borrowers who are
in school are eligible for in-school consolidation if they:
- -are attending a Direct Loan school
and
-include at least one Direct Loan or FFEL in an in-school period.
OR
- -are attending a non-Direct Loan school
and
-have at least one Direct Loan
and
-include at least one Direct Loan or FFEL in an in-school period.
Examples:
A borrower who is attending a Direct Loan school
half-time and wishes to consolidate all of his loans (two FFELs in an
in-school period) is eligible for in-school consolidation.
However, a borrower who is attending a non-Direct Loan
school half-time and wishes to consolidate all of his loans (two FFELs in
an in-school period) is NOT eligible for in-school consolidation.
NOTE: Borrowers who apply for
an in-school consolidation should apply after their last loan is fully
disbursed AND allow enough time for the Loan Consolidation Center (LCC)
to receive the application BEFORE their last day of attendance in order to
take advantage of the in-school consolidation benefits.
Out of School
Borrowers that are
out of school are eligible to consolidate if they:
- -include at least one Direct Loan
OR
- -include at least one FFEL
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.
Examples:
A borrower who recently graduated and wishes to consolidate
a Direct Loan with other Federal education loans is eligible for a Direct
Consolidation Loan.
A borrower in repayment who wishes to consolidate an FFEL
with other Federal education loans (no Direct Loans) and has been unable to
obtain a Federal Consolidation Loan is eligible for a Direct Consolidation
Loan.
A borrower in repayment who wishes to consolidate an FFEL
with other Federal education loans (no Direct Loans) and is able to obtain a
Federal Consolidation Loan with acceptable income-sensitive repayment terms
is NOT eligible for a Direct Consolidation Loan.
NOTE:
Borrowers who apply during their grace period go into repayment within 60 days,
forfeiting any remaining grace period. Thus, borrowers who apply too early in
their grace period may not be able to take full advantage of their
grace period.
- PARENT (PLUS) BORROWERS
Parent borrowers must meet the eligibility requirements for their status:
in-school, out-of-school, or in default.
In School
Parent borrowers, who are also students themselves, may be
eligible for in-school consolidation. Parent borrowers with PLUS loans are
eligible for in-school consolidation only if they include other
eligible, non-PLUS loans
in an in-school period in their consolidation request. These borrowers then
must meet the in-school requirements.
Out of School
Parent borrowers are out of school if they have only PLUS
loans or have PLUS loans and student loans on which they are making
scheduled payments (or that are in a period of grace, deferment, or
forbearance). These borrowers are eligible to consolidate if they:
- -include at least one Direct Loan
OR
- -include at least one FFEL
and
-have been unable to obtain a Federal Consolidation Loan.
NOTE:
Parent borrowers are not eligible for a Direct Consolidation Loan on the
basis of being unable to obtain a Federal Consolidation Loan with
income-sensitive terms acceptable to them because PLUS Loans are not
eligible for the Income Contingent Repayment Plan.
Parent Credit Check Requirements
Parent borrowers must also meet credit requirements
(including those with a defaulted PLUS loan). They are eligible for a
Direct Consolidation Loan if they:
- -do not have an
adverse credit history
OR
- -have an adverse credit history
AND
-obtain an
endorser who does not have an adverse credit history for the PLUS part of
the consolidation loan.
or
-document extenuating circumstances.
Examples:
A parent borrower in repayment who does not have an
adverse credit history and who has been unable to obtain a Federal PLUS
Consolidated Loan is eligible for a Direct Consolidated Loan.
A parent borrower in repayment who wishes to
consolidate a Direct PLUS Loan, but has an adverse credit history,
must obtain an endorser for the PLUS portion of the Direct Consolidation
Loan or document extenuating circumstances to the Department.
- MARRIED BORROWERS
In School
If applying for in-school consolidation, both spouses
must meet the in-school requirements for student borrowers.
Out of School
Married borrowers are eligible for joint consolidation if
either borrower meets the out of school requirements
Note:
Married borrowers should be counseled to weigh carefully their decision to
consolidate jointly. Both borrowers must qualify for deferment, forbearance,
and certain discharges. If one spouse dies or becomes permanently disabled,
the other spouse is still responsible for repayment of the entire consolidation
loan. On the other hand, when a single borrower dies or becomes permanently
disabled, the consolidation loan is discharged. In the case of divorce, the
consolidation loan cannot be unconsolidated. Both parties are accountable
for the entire consolidation loan until it is paid in full. Thus, each spouse
may want to consolidate separately to minimize risk.
Source:
U.S. Department of Education, Loan Consolidation Department (multiple pages)
