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Determine if You Are Eligible
To be eligible for federal loan consolidation:
- You must be in grace period or repayment of your student loans
- Your total student loan debt must be at least $7,500
- Your loans must not be in default
- You must not have not consolidated your eligible student loans previously or you must have one additional loan to add to your consolidation
Know the Advantages
The advantages of consolidating your student loan include:
- You will reduce your student loan payments by up to 45%
- You will only make one payment each month to one lender
- You will be eligible for borrower benefits on your new consolidation loan (benefits vary by lender)
Know the Disadvantages
The disadvantages to consolidating your federal student loans are:
- If you currently receive borrower benefits on your underlying loans, your benefits will be lost (Often Stafford and PLUS loans have more generous benefits, including larger interest rate reductions and rebates.)
- You will be increasing your repayment term from 10 years to 12 - 25 years. This lowers your payment, but you will end up paying more interest over the life of the loan.
Know the Alternatives to Consolidation
Instead of Consolidating you may check out the following option:
- Want a single payment? Contact your servicer and request that you receive a single bill with a single due date.
- Have loans with multiple lenders? You may request that your lender purchase or sell your loan, in order to get all of your loans to one lender.
- Want to lower payments? You may request an income-sensitive repayment option or graduated repayment plan to lower payments.
- Want to lower payments and extend your repayment term? If you have over 30,000 in student loans taken out after October 7th, 1998, you may request an extended repayment term, allowing you up to 25 years to repay your loans, lower your payments, and keep your Stafford and/or PLUS borrower incentives.
How the Consolidation Process Works
You can only consolidate your loans with the Department of Education into a Direct Consolidation Loan.
Here are a few things to keep in mind:
- A federal consolidation loan interest rate is based on a weighted average of the interest rate of your underlying loans. This is a federal formula
- The government offers a .25% borrower benefit or incentive for automatic payments
- Be sure to run the numbers and compare what your consolidation loan payment and interest rate will be with your current interest rate and payments on your federal student loans
The consolidation process will take 30 - 90 days once you submit your application. Here is a brief outline of the lender process:
- review your application for errors and contact you if additional information is necessary
- send requests to your other lenders to provide us with the exact balance and interest rate
- calculate the exact payoff amounts of your underlying loans
- send your other lenders checks to pay off your loans in full
- add your new loan to our system
- notify you once your consolidation loan is complete and inform you of your first payment due date
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