Consolidation

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A Direct Consolidation Loan allows you to consolidate (combine) multiple federal education loans into one loan. The result is a single monthly payment instead of multiple payments. Loan consolidation can also give you access to additional loan repayment plans and forgiveness programs.

Most federal student loans, including the following, are eligible for consolidation:

Subsidized Federal Stafford Loans

Unsubsidized Federal Stafford Loans

PLUS loans from the Federal Family Education Loan (FFEL) Program

Supplemental Loans for Students

Federal Perkins Loans

Nursing Student Loans

Nurse Faculty Loans

Health Education Assistance Loans

Health Professions Student Loans

Loans for Disadvantaged Students

Direct Subsidized Loans

Direct Unsubsidized Loans

Direct PLUS Loans

FFEL Consolidation Loans and Direct Consolidation Loans (only under certain conditions)

Private education loans are not eligible for consolidation, but for some Direct Consolidation Loan repayment plans, the total amount of your education loan debt—including any private education loans—determines how long you have to repay your Direct Consolidation Loan. Direct PLUS Loans received by parents to help pay for a dependent student’s education cannot be consolidated together with federal student loans that the student received.

The following are the main disadvantages to consolidation:

1. Recent borrowers will generally not save on interest through consolidation. This is because interest rates on federal loans made after July 1, 2006, are fixed. The interest rates for consolidation loans are calculated based on the average interest rates of the loans being consolidated. Borrowers with variable-rate loans from before July 1, 2006, may be able to get interest rate reductions by consolidating.

2. Consolidation extends repayment. Though it often lowers monthly payments, consolidation creates more overall costs in interest over the life of the loan and extends loan obligations further into the future. If borrowers are close to paying off their loans, consolidation may not be worthwhile.
3. Borrowers may lose some rights by consolidating. This is most clearly a problem if the borrower consolidates federal loans into a private consolidation loan (they would lose the rights associated with federal loans). Borrowers may also lose some options and protections if they consolidate certain federal loans, particularly Perkins loans, into other federal loan programs. At this time it is unclear whether consolidation would result in a borrower losing his or her right to assert cause of actions that the borrower has against his or her school as a defense to repayment. The following can be advantages:

1. If you currently have federal student loans that are with different loan servicers, consolidation can greatly simplify loan repayment by giving you a single loan with just one monthly bill.

2. Consolidation can lower your monthly payment by giving you a longer period of time (up to 30 years) to repay your loans.

3. If you consolidate loans other than Direct Loans, it may give you access to additional income-driven repayment plan options and Public Service Loan Forgiveness. (Direct Loans are from the William D. Ford Federal Direct Loan Program.)

4. You will be able to switch any variable-rate loans you have to a fixed interest rate.


Studentaid.gov

NCLC.org