Frequently Asked Questions About
Consolidation Loans

What is loan consolidation?

Loan consolidation allows you to refinance any or all of your outstanding federal student loans and create a single new loan with one monthly repayment.  The new loan will have a fixed interest rate, new terms and may have an extended repayment period of up to 30 years.

Both the Federal Family Education Loan (FFEL) Program and the William D. Form Federal Direct Loan Program offer Consolidation loans.  However, each program has its own requirements and application procedures and may offer different benefits or repayment options.

Consolidation loans are not for everyone.  Before choosing loan consolidation, be sure to review all your options.

The following information focuses on the Consolidation loan process for FFEL loans and how to determine if loan consolidation is the best choice for you.

Step 1 - Ask yourself:  Is loan consolidation right for me?

Consolidation loans are not for everyone.  Advantages and disadvantages depend on the type of loan, the loan amount, interest rates, disbursement date and repayment incentives.  You'll also need to consider the various loan provisions, including interest subsidy, deferment, forbearance, forgiveness and cancellation.  Use the handy chart on here to help you weigh the pros and cons.

• Who is eligible for loan consolidation?

To be eligible for loan consolidation under the FFEL Program, you must be in the grace period or already in repayment on each loan you have chosen to consolidate.  When you sign your Consolidation loan application, you'll be agreeing to new terms and conditions.  If you are in default, you must have made satisfactory repayment arrangements with your current lender or have agreed to repay the consolidating lender under an income-sensitive repayment plan.  Also, you cannot be enrolled in college, or if you are, only less than half-time.

If you're married, you and your spouse may consolidate your individual loans into one new loan.  However, proceed with caution when considering spousal consolidation:  If either you or your spouse cannot repay or refuses to repay the loan, the other party will be responsible for repaying the full loan amount.

• Can I consolidate my loans with my spouse? 

  As of July 1, 2006, spousal consolidation is no longer an option.

• If I have a Direct loan, can I apply for a FFEL Consolidation loan?

Most lenders allow Direct loans to be combined with FFEL loans.  Typically, the lender requires that you have at least one FFEL loan with them, although there are some lenders who may consolidate your Direct loans even if you have no FFEL loans.

• Is there a minimum amount to consolidate?

Lenders may require a minimum loan amount to create a new Consolidation loan and this amount may vary by lender.

Step 2 - Consider your alternatives

You may have alternatives to loan consolidation, depending on what you plan to accomplish.  Let's take a closer look:

• Need a lower monthly payment?

Your current lender may offer repayment options that can help.

• Temporarily struggling to keep up with you loan payments?

Consider asking your lender for a deferment or forbearance that allows you to postpone or reduce your monthly payments.

• Juggling too many payments with one lender?

  Ask about loan combination or "serialization."  If all your loans are with one lender, they may be combined to simplify repayment.  Not only will you receive a single statement each month, but your payment is likely to be lower than if you were paying each loan separately.
  

• Simply juggling too many loans?

Ask your lender to purchase the loans you have with other lenders so that you can take advantage of loan serialization.

• What are my repayment options?

There are four repayment plans for paying back your loan:  standard, graduated, income-sensitive and extended.  You may change your plan once a year by contacting your lender.  Typically, you'll be provided the standard repayment plan unless you request otherwise.

• The standard plan allows you to pay the same amount each month--at least $50 or the interest that has accrued--with up to ten years to repay.

Example:

A subsidized Stafford loan repaid at 8.25 percent interest, assuming a standard repayment plan of 10 years, or 120 payments.

Loan Amount	Monthly Payment	Total Paid  (Loan + interest)
$10,000	$122.65	$14,718.32
$50,000	$613.26	$73,591.58

• The graduated plan calls for your payments to start out low and increase over time, with up to ten years to pay. There are two options.
  • Under the first, your payments are interest only the first two years, followed by larger payments in years three through 10. 
  • The second option allows four years of interest-only payments, followed by larger payments in years five through 10.

Example:  A subsidized Stafford loan repaid at 8.25 percent interest, assuming a two year graduated repayment plan of 10 years.

Loan Amount	Beginning Monthly Payment  Years 1-2	Ending Monthly Payment   Years 3-10	Total Paid   (Loan + interest)
$10,000	$68.75	$142.64	$15,343.51
$50,000	$343.75	$713.20	$76,717.56

• The income-sensitive plan bases your payments on a percentage of your gross monthly income and the amount you borrowed, but they must cover at least the interest due.  Repayment terms will vary based on the percentage you request, your income and the loan amount.

Example:  A subsidized Stafford loan repaid at 8.25 percent interest, assuming you requested the monthly payment to be based on 4 percent of your gross monthly income.

Loan Amount	Gross Monthly Income	Monthly Payment		Total Paid   (Loan + interest)
		First 5 years - interest only	Remaining 10 years
$10,000	$1,500	$68.75	$122.65	$18,843.32
$50,000	$4,000	$343.75	$613.26	$94,216.58

• The extended plan is for new borrowers (those who had no outstanding FFEL loans as of October 7, 1998, or those who had no outstanding FFEL loans when they acquired new FFEL loans after October 7, 1998), who have more than $30,000 in outstanding loans.  The payments can be fixed or graduated, with repayment up to 25 years.

Example:  A subsidized Stafford loan repaid at 8.25 percent interest, assuming an extended repayment plan of 25 years, or 300 fixed monthly payments.

Loan Amount	Monthly Payment	Years in Repayment	Total Paid   (Loan + interest)
$50,000	$394.23	25	$118,267.52

Step 3 - Determine what loans may be consolidated

Most federal loans are eligible for FFEL Program consolidation, including:

• Subsidized Stafford Loans
• Unsubsidized Stafford Loans
• Consolidation Loans
• PLUS Loans
• Perkins Loans
• Health Professions Student Loans
• Health Education Assistance Loans (HEAL)
• Loans for Disadvantaged Students
• William D. Ford Federal Direct Loans

Private loans from banks, colleges or family members cannot be consolidated.  Alternative/private loan consolidation options are available through private lenders but may not include the same benefits or repayment options as federal Consolidation loans.  (If you have HEAL loans, you may wish to consider refinancing rather than consolidating them.  To learn more, visit the U.S. Department of Health and Human Services website at www.hrsa.gov .)

• 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 your loans.

• How do I find out which loans I can consolidate?

To help determine which of your loans are eligible for consolidation and what your monthly payment and interest rate would be, complete Worksheet 1.

If you need information on your loans, you can access the National Student Loan Data System, the U.S Department of Education’s central database for all federal student aid records. (Keep in mind that any private loans will not be listed here, nor will heal and other Health Professions loans, but you will still want to include them on the worksheet under ineligible loans.)

Here's how to access your federal loan information:

1. Apply for a personal identification number ( PIN), from the U.S. Department of Education, if you don't already have one.  Go to www.pin.ed.gov .  You'll receive your PIN by mail within seven to 10 working days (or sooner by email).
2. Go to www.nslds.ed.gov after receiving your PIN and click on the Financial Aid Review button.  You'll need to provide your Social Security Number , the first two letters of your last name, your date of birth and your PIN.
3. Review your student loan information.  You'll see a listing of your federal student loans with the amounts, dates of origination and outstanding balances.  To view detailed information about each loan, including the interest rate, click on the number next to each loan.

• If I already have a Consolidation loan, can I re-consolidate?

Typically, yes.  You may re-consolidate your Consolidation loan under the FFEL Program if you have at least one other eligible loan, either in the grace period or repayment, to consolidate.  This other loan may be yours or your spouse's.  It may be a new loan or a loan that was not included in your first consolidation. 

To review the Worksheets listed above & complete the rest of the process to determine your eligibility for consolidation, you should download the entire booklet "A step-by-step look at loan consolidation" from here.