Student Loan Consolidation

Student loan consolidation is available under the Federal Family Education Loan (FFEL) program as authorized by the federal government. 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. Also referred to as student debt consolidation, loan consolidation is designed to help individuals who have high monthly student loan payments. With a student loan consolidation, you can consolidate all or some of your outstanding education loans into a single new loan with one monthly payment. This typically results in a lower monthly payment due to the longer repayment term. Also of note is that consolidation loans have a fixed interest rate for the life of the loan.

Best Time To Consolidate
Although there is not a deadline to apply, your interest rate will most likely be higher if you wait until the grace or deferment period on your loan has ended. Once this grace or deferment period has ended the higher in-repayment interest rate will be used to calculate your weighted average fixed rate Also note that you must be in the repayment (including forbearance or deferment) or in the grace period for each loan you want to consolidate.

Advantages of Student Loan Consolidation

Lower the monthly payment by extending the term

One single payment to one lender

Interest is tax deductible

Interest rate is fixed (locking in today’s rates)

You can choose to consolidate some or all of your student loans

There are no fees for federal consolidation loans

Married couples can consolidate their student loans together (In 2006 this was disallowed)

No penalties for prepayment

Some companies also provide other benefits such as:

Flexible payments plans that allow you to structure the repayment to meet your needs

Lower interest rates for automatic deductions from a bank account or for a certain number of on time payments

Disadvantages of Student Loan Consolidation

If you select an extended repayment, you may end up paying more interest costs for the overall length of the loan since you will be paying less each month you will pay on the loan for a longer duration

Loss of remaining grace period (if you consolidate during your grace period)

Loss of deferment and cancellation benefits for some loan types

Things to consider:

You are only allowed to consolidate once (unless you borrow a new eligible loan)

Private or alternative loans cannot be consolidated with federal loans

If you are close to paying off your loans, may not be any advantage to consolidating

If married partners consolidate together and then divorce, both are still liable for the entire debt

Types of loans that can be consolidated

Subsidized and unsubsidized Federal Stafford

Loans (Federal Family Education Loan Program and Federal Direct Loan Program)

Federal Supplemental Loans for Students (SLS)

Federal Perkins Loans Health Professions Student Loans (HPSL), including Loans for Disadvantaged Students (LDS)