Federal Student Loan Consolidation
The Federal Student Loan Consolidation Program combines student and parent loans used for higher education into one single loan. This loan is then used to pay off the original loans and effectively combine multiple loan payments into one single payment. Federal student loan consolidation also lowers your monthly payments, but increases the overall amount of interest paid on the loan.
There are no pre-payment penalties on a federal student loan or federal consolidation loan. If you are working toward paying off the loan ahead of the payment schedule, it is a good idea to notify the lender that the extra payments should be applied towards the principle of the loan and not towards the interest.
Repayment of a consolidated student loan typically begins 60 days after the disbursement of the loan. This does not apply if the borrower qualifies for a deferment or forbearance.
Federal loans available for consolidation include:
- Direct Loans
- Guaranteed Student Loans
- FFELP - Federal Family Education Loan Program (Stafford, PLUS and SLS)
- FISL - Federal Insured Student Loan
- HEAL - Health Education Assistance Loan
- Health Professional Student Loans
- NSL - Nursing Student Loan
- Perkins
Who Can Consolidate?
Those who are allowed to consolidate their loans include:
- Students whose loans are in the grace period or repayment period
- Students no longer in school or only enrolled on at least a half-time basis.
- As part of the Higher Education Reconciliation Act of 2005, married students are no longer able to consolidate their loans. Each spouse is responsible for his/her own loan.
- Student's loans and their parents' loans cannot be combined. However, they can consolidate their loans separately -- the student can combine multiple loans that he/she is responsible for, but cannot consolidate his loans with those of his parents.
- Those who have already made satisfactory payments on their existing loans (there are considerations for loans in default as well)
- There are no restrictions on when parents can consolidate their PLUS loans.
Federal student loan consolidation, with most lenders, requires a minimum balance. A few lenders will offer consolidation loans on balances of $5,000 or more, however, most only offer consolidation loans on balances of $7,500 or more. The Federal Direct Consolidation Loan program, however, has no requirements for a balance on the loans you wish to consolidate.
Most consolidation loans are taken out after the grace period of the loan has expired and are held for the lifetime of the loan with a single lender. Some students will consolidate all but one loan in order to reserve the right to consolidate all of their loans (the consolidation loan and the remaining loan) in the future with another lender in the hopes of finding a better rate.
Which Loans Can I Consolidate?
Any of the qualifying student loans mentioned above are available for consolidation. Even if you already have a consolidation loan, you can consolidate it with other student loans, not previously consolidated. You can also consolidate multiple consolidation loans.
What Kind of Repayment Plans Are Available?
There are several types of repayment plans available for your federal loan consolidation other than the standard 10-year repayment option. These include:
- Extended Repayment
- Graduated Repayment
- Income Contingent Repayment (Direct Loans Only)
- Income Sensitive Repayment (FFEL Only)
It is important to weigh the long-term costs associated with consolidating your federal student loan. While the lower montly payments are attractive, consolidating significantly increases the amount of money you will have to repay.
