Loan consolidation allows you to refinance any or all eligible outstanding federal student loans and create a single new loan with one monthly payment. The new loan will have a fixed interest rate, new terms, and may have an extended repayment period of up to 30 years.
Loan consolidation allows you to refinance any or all eligible outstanding federal student loans and create a single new loan with one monthly payment. The new loan will have a fixed interest rate, new terms, and may have an extended repayment period of up to 30 years.
Loan Consolidation at a Glance 
Both the Federal Family Education Loan (FFEL) Program and the Direct Loan Program offer consolidation loans. FFEL Consolidation loans are available from participating lenders, and Direct consolidation loans are available from the federal government. Alternative consolidation options are also available through private lenders. However, benefits, repayment options and application procedures vary.
Both the Federal Family Education Loan (FFEL) Program and the Direct Loan Program offer consolidation loans. FFEL Consolidation loans are available from participating lenders, and Direct consolidation loans are available from the federal government. Alternative consolidation options are also available through private lenders. However, benefits, repayment options and application procedures vary.
The following information pertains to the FFEL Consolidation loan process. For more information about the Direct Consolidation loan processes, visit www.loanconsolidation.ed.gov.
Is loan consolidation right for me?
Consolidation loans are not for everyone. Several elements generate advantages and disadvantages that relate to your current and potential consolidation loan.
Before choosing loan consolidation, review all your options to be sure it's the right choice for you.
Who is eligible for loan consolidation?
To be eligible for loan consolidation under the FFEL Program, you must agree to the terms and conditions listed on the Application and Promissory Note, which include:
- You are not enrolled in school, or you are enrolled on a less than half-time basis.
- You are in the "grace period" or already in repayment on EACH loan you have chosen to consolidate.
- If you are in default, you must either make satisfactory repayment arrangements with your current lender or agree to repay the consolidating lender under an income-sensitive repayment plan.
- You must agree to notify the lender of any address changes.
Spouses may consolidate their eligible loans together.
If I have a direct loan, can I apply for a FFEL consolidation?
Most lenders will combine Direct and FFEL Program loans. Typically, the lender requires the borrower to have at least one underlying FFEL Program loan with them. Some lenders may consolidate Direct loans for borrowers who have no FFEL Program loans. Check with your current lender(s) on individual requirements.
Is there a minimum to consolidate?
Lenders may require a minimum eligible loan amount before creating a new consolidation loan. Because each has specific terms, you should consult with your lender prior to consolidating.
FFEL loan repayment options
Considering alternatives to consolidation
Worksheet 1
Complete this worksheet to determine which of your loans are eligible for consolidation.
*Alternative and non-federally guaranteed loans will not appear on NSLDS. Also HEAL loans and other health professions loans will not appear, but you will want to list these on the worksheet under non-eligible loans.
What If I'm in default?
Even delinquent and defaulted loans may be consolidated. To qualify, you must be in repayment on your defaulted loan (typically three consecutive, voluntary, on-time, full monthly payments), or agree to repay your new consolidation loan under the income-sensitive repayment plan. If you have a court judgment on your federal student loan debt, you cannot consolidate. Contact your lender for details.
Will I only have one Consolidation loan?
If you wish to consolidate both subsidized and unsubsidized education loans, your lender will create two new consolidation loans in your name -- one for each type of loan. Lenders are required to track these loans separately, but will combine both loans for billing purposes; therefore, you will only make one monthly payment.
If I already have a Consolidation loan, may I re-consolidate?
In most cases, yes. You may re-consolidate a consolidation loan under the FFEL Consolidation Loan Program if you have at least one other eligible (in grace period or repayment) loan to submit as part of the new loan. This other loan may be yours or your spouse's. It may be a new loan or an eligible loan that was not included in your first consolidation. Both FFEL Program and Direct Consolidation loans are eligible for FFEL Program re-consolidation under this provision. Contact your lender for more information.
Estimate my new monthly payment under consolidation
After consolidating, your new payment will depend on several factors including:
- the amount being consolidated
- the length of the repayment term
- the interest rate of the consolidation loan, and
- the consolidation repayment plan you select
What repayment plan options will I have?
Under FFEL Program consolidation, you will have the same repayment plan options you did before consolidating: standard, graduated, and income-sensitive. The difference is that you can extend the repayment term for these plans.
How long will my new repayment term be?
Your repayment term length is based on your total education loan debt. You may count both your eligible loans and ineligible loans (not to exceed the total eligible loan amount) in this equation. Remember that your monthly payments and total repaid depend on the length of the repayment term: the longer the repayment term, the lower the monthly payment -- and the higher the total repaid.
Worksheet 2
Complete this worksheet to determine how long your new repayment term will be.
Calculate your new interest rate
A consolidation loan's new interest rate is the weighted average of the interest rates on the loans being consolidated, rounded up to the nearest one-eighth of one percent. The new interest rate cannot be higher than 8.25% and is fixed for the life of the loan.
Worksheet 3
Complete this worksheet to calculate your new interest rate.
What will my new monthly payment be?
Now that you know your maximum repayment term length, you can estimate your monthly payment. The chart below shows the monthly payments and total repayment amounts for various consolidation loan amounts under the standard repayment plan. The chart uses an 8.25% interest rate - the highest possible. If your rate is lower, your payments will be lower.
Understand Consolidation loan terms
Your new consolidation loan will have its own terms and benefits. Under the FFEL Consolidation Loan Program you agree:
- To notify your lender within 10 days of any change to your address, telephone number or name
- To pay principal and interest as scheduled, including any late fees
- To new deferment eligibility and criteria
- If you fail to make the required payments of interest during periods of authorized deferment and forbearance, the lender may capitalize such interest
- That you understand your monthly payments can be less but, generally, consolidation borrowers pay more over the life of the loan due to the extended repayment term; and
- That you understand your lender or guarantor will report the repayment, delinquency or default status of your loan to credit bureaus
Will I still have deferment and forbearance options?
Yes. Both deferment and forbearance options are available after you consolidate.
A deferment allows you to temporarily postpone payments of your Consolidation loan. Deferments are not automatic; you must meet eligibility criteria, apply, and receive approval from your lender. During periods of deferment on subsidized consolidation loans, the principal payments are postponed and interest is billed to the government. When unsubsidized consolidation loans are deferred, only the principal payments are postponed and you are responsible for the accrued interest. The three most common reasons for deferment are:
- Returning to school at least half-time (SCH)
- Unemployment (UNEM)
- Economic hardship (HRD)
If you don't qualify for a deferment but are having difficulty repaying your loans, you may be eligible for a forbearance. Forbearance is the temporary postponement or reduction in your monthly payment. During this postponement, interest accrues and you will be billed by your lender quarterly. You have the option to pay the interest or allow your lender to capitalize the interest at the end of the forbearance period. If you capitalize the interest on your loan, your monthly payment and total repayment amount will increase. Circumstances in which a lender might grant forbearance include financial hardship, and/ or illness. Forbearance is allowed at the discretion of the lender. Contact them for more information.
Will my new loan come with repayment incentives?
Many lenders offer repayment incentives in the form of lower interest rates for on-time payments. Interest rates may also be reduced if you agree to "direct pay" - have monthly payments deducted from your personal banking account. You may save hundreds, even thousands, of dollars by taking advantage of these incentives. Ask your lender for details before consolidating.
Applying for a Consolidation loan
When is the right time to apply?
Each loan you wish to consolidate must be in the grace period or repayment status (i.e. not in an in-school status) to be included. You may save money by applying for consolidation while in your grace period. Stafford loans disbursed after July 1, 1995, have two interest rates attached to them -- one for in-school, grace period, and deferment status and the other for repayment status. After entering repayment on these loans, your interest rate will increase. By consolidating during the grace period, the lender will use the lower, grace period interest rate to calculate your new consolidation loan rate. Therefore, consolidating prior to entering repayment may be beneficial.
Be aware that, although most federal student loans have a six-month grace period before entering repayment, consolidation loans do not. Once your consolidation loan is approved, your monthly payments will begin within 60 days. If you need the grace period to look for employment, you may consider waiting until some of your grace period elapses before applying for consolidation.
Remember that interest rates change each July 1. Consider what the trends are when applying near this date. It may be beneficial to wait until the new rate is announced.
Are there any fees?
There are no origination fees or any other kind of charges for obtaining a Consolidation loan. There are also no penalties for prepaying or paying the loan earlier than scheduled.
How do I apply?
The first step is to contact your current lender(s). If you have only one lender, you must apply through them. If you have more than one lender you can choose which you'd like to consolidate through. If none participate, you may apply through any other participating lender.
The consolidating lender will send you an application packet, including the Federal Consolidation Loan Application and Promissory Note and instructions, as well as the Additional Loan Listing. On the application complete:
- Section A - Borrower Information
- Section B - Spouse Information. Complete only if applying for a spousal consolidation.
- Section C - Reference Information
- Section D - Education Loan Indebtedness
- Section E - Repayment Options. Select a repayment plan for your new loan: standard, graduated, income-sensitive, or extended.
- Section F - Promissory Note. Read through all materials carefully before signing. If you do not understand any part of the packet, or have questions, contact the lender.
After completing your application, mail in your paper work and retain a copy for your records.
Application Tips
- Refer to your completed Worksheet 1 and the instructions on the application when listing your loans. The "loan type" will use different codes than used on the NSLDS Web site and your worksheet. Look for the names of the loans rather than the loan types.
- Contact each lender to obtain the account number for each loan or use a recent statement or other correspondence that contains the information.
- List all eligible loans and mark "Yes" to loans in question 26 you wish to consolidate.
- If you wish to extend your repayment term, list ineligible loans as well, and mark "No" to those in question 26. Using these loans, your lender will calculate the repayment term length based on your total education loan indebtedness.
- If you have more loans than space available, list other loans on the Additional Loan Listing sheet supplied in the packet.
What happens next?
Applications are typically processed within 30 to 90 days. If the application is approved, the consolidating lender will pay off the full amount of the original loans and send you a disclosure statement and repayment schedule for the consolidation loan. This packet will include a listing of your total debt, the new interest rate, and terms. Until your new consolidation loan is in repayment status, you MUST continue to make regular loan payments on each of your current loans. Payments on your consolidation loan will begin within 60 days of the time your consolidating lender pays off your underlying loans.
Before choosing to consolidate
Before you decide to consolidate your loans, take some time to see if you would benefit. Check out EDWISE, the Online Financial Planning Guide, at http://www.edwise.org, to evaluate your repayment options. Ask your lender about the benefits of a Consolidation loan: What would your new interest rate, monthly payment and terms be? Would you still have the same deferment and forbearance options? As always, pay careful attention to all the terms and conditions of the new loan.
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