Federal Loan Consolidation
Federal Loan Consolidation is available under the Federal Family Education Loan (FFEL) program as authorized by the federal government. Federal Loan Consolidation is designed to help individuals who have high monthly student loan payments. With Federal Loan Consolidation, you can consolidate all or some of your outstanding education loans, even if your loans are currently held by more than one lender and are of different loan types. Federal Loan Consolidation creates a single, new loan with one monthly payment.
When is the Best Time to Consolidate My Federal Student Loans?
There is no deadline to apply for a Federal Consolidation loan. However, there are several things to consider when deciding on when to consolidate. In order to be eligible for a Federal Consolidation Loan under the Federal Family Education Loan program (FFEL), you must be in the grace period or already in repayment on each loan you select to consolidate. Repayment includes loans that are in forbearance or deferment. Once the grace period or an approved period of deferment has ended on your federal student loans, the higher in-repayment interest rate will be used to calculate your weighted average fixed rate. Therefore, your fixed interest rate for the Federal Consolidation Loan will be higher if you consolidate after your grace period or approved deferment.
Is There a Credit Check Before Approving Me for a Federal Consolidation Loan?
No. There is no credit check to obtain a Federal Consolidation Loan. However, you
must not be in default on a Federal Student Loan.
Eligible for Federal Loan Consolidation
- Federal Stafford Loans (subsidized and unsubsidized)
- Federal Direct Loans
- Federal Perkins Loans
- Federal Insured Student Loan (FISL)
- Auxiliary Loan to Assist Students (ALAS)
- Federal PLUS Loans (if you are the borrower)
- Federal Supplemental Loans for Students (SLS)
- National Direct Student Loans (NDSL)
- Loans for Disadvantaged Students (LDS)
Not Eligible for Federal Loan Consolidation
Non-federal education loans such as private loans, school-based loans or loans from family members are not eligible for consolidation under the Federal Consolidation Loan program.
Private /Alternative loan repayment options may be available through private lenders, but they may not include the same benefits as the Federal Loan Consolidation program. For additional information, contact your private loan lender.
Interest Rate Calculation
The fixed interest rate for your Federal Consolidation loan is based on the weighted average of the interest rates of the loans you consolidate rounded up to the nearest 1/8th percent and capped at 8.25%. Students should contact their lenders for their current interest rate information.
Benefits of Federal Loan Consolidation
- A single and lower monthly payment
- Convenience - easier to manage one loan versus loans with multiple lenders
- Consolidate undergraduate and graduate federal loans
- Easy online application process
- No pre-payment penalty
- No loan fees
- Deferment and forbearance options
- Lender repayment incentives
- Extended repayment periods
- Eligible for the federal interest deduction for education loans (assuming students meet the IRS income eligibility requirement)
- More disposable income each month due to a lower monthly payment
Disadvantages of Federal Loan Consolidation
Reducing the monthly payment and extending repayment terms may increase the total interest charged on the loan. Borrowers who consolidate in the grace period will lose any grace period that would otherwise remain if they had not consolidated their loan. If federal loan interest rates increase, consolidating low interest rate loans may increase overall repayment costs, and the borrower may be locked into a higher interest rate.
Locating Your Federal Loan Lenders
You can locate prior and current federal loans, including prior consolidation loans, by accessing National Student Loan Data Systems (NSLDS) at http://nslds.ed.gov. This website has information on loan amounts, outstanding loan balances, loan statuses and disbursements. In order to access your records on the NSLDS web site you will need to provide the username and password associated with your FSA ID.
Federal Loan Consolidation Repayment Options
Standard Repayment - This plan allows you to make equal payments over the term of the loan; generally up to 10 years. Each payment includes both principal and interest. This loan has the highest initial monthly payment, but results in the lowest total interest paid over the life of the loan.
Graduated Repayment - This plan allows for your payments to start out low and increase every two years for up to 10 years. This plan allows for interest-only payments for the first quarter or third of the total repayment period, followed by increased payments for the remaining term of the loan.
Income-Sensitive Repayment - These plans base loan payments on a percentage of your gross monthly income and the amount borrowed. Repayment terms will vary based on the percentage you request, your income, and the total loan amount. Pay As You Earn, Income-Based and Income-Contingent repayment options are generally over a 20 or 25 year repayment period.
Extended Repayment - Under an extended repayment schedule you can repay your Federal Consolidation Loan over a 25-year period, on a fixed or graduated payment plan, if you have federal loans totaling in excess of $30,000.
When Does Repayment Begin?
Once your loan has been funded, you will receive a Federal Loan Consolidation Disclosure Statement and Repayment Schedule from the servicer of your new Consolidation loan. Thirty days from the date your loan is funded, you are required to begin repayment according to that schedule.
Can I Switch Repayment Plans?
Yes. Simply contact your servicer to switch plans. There are no extra costs or penalties to switch plans, and you can do so once a year.
Maximum Repayment Terms
Current federal regulations state that the maximum length of the repayment term is based on the sum of the loans being consolidated, and the unpaid balance on other student loans. Consolidation offers extended repayment periods from ten to thirty years, depending on your cumulative debt. Your consolidation lender will calculate the actual repayment term.
Once I Have Taken Out A Federal Consolidation Loan, Can I Add Any New Loans To It?
Yes. Eligible loans may be added to your Federal Consolidation loan within 180 days of the date that the consolidation loan was funded. To add a loan, contact the servicer.
The Office of Financial Assistance recommends that you carefully evaluate the federal loan consolidation program, and make a decision based on your individual need.