Federal Loan Consolidation
Loan consolidation is a federal program through the U.S. Department of Education Direct Loan program (DL) that allows borrowers to combine all of their eligible federal education debt into one new loan with one monthly payment.
A common reason borrowers consolidate is because their original loans are being serviced by multiple lenders/servicers, which makes repayment complicated. Consolidation creates one new loan with one monthly payment and one servicer to contact.
If your federal education loans are already with one lender/servicer, such as VSAC, you are already experiencing the ease of one monthly bill and one servicer to contact.
If you have both federal and private loans, you will likely have multiple servicers after consolidation. Your private education loan will remain with its current lender, and the federal consolidation loan will be moved to a DL servicer.
The most common federal loan types that borrowers consolidate are Stafford and PLUS. Federal Perkins loans are also eligible, as are specialized federal loans for health education.
Private education loans are not eligible for federal loan consolidation.
You may apply to consolidate your loans in grace, deferment, or repayment status.
Effective July 1, 2010, through June 30, 2011, students who are currently enrolled at least half time in school may also be eligible to consolidate their loans, but will lose the six-month grace period on those loans following the end of enrollment.
If you choose to consolidate your loans while you are enrolled, you will enter repayment immediately upon leaving school (or dropping below half-time enrollment status).
Depending on the total amount of your education debt, you may extend your repayment period up to 30 years, which may reduce the amount of your monthly payment.
Although it may be appealing or even necessary for you to lower your monthly payment amount, be aware that the longer you take to pay off your loan, the more you will pay in interest charges over the life of the loan. Learn why.Return to top
The interest rate on the federal consolidation loan is a fixed rate based on the weighted average of the interest rates on the loans you consolidate, rounded up to the nearest 1/8th percent with a maximum rate of 8.25%.
Federal Perkins loans already have a fixed interest rate, as do federal Stafford or PLUS loans that were taken out on or after July 1, 2006. If you are receiving any borrower benefits from your current lender, you will lose those benefits when you consolidate.
Federal Perkins loans have a variety of loan forgiveness opportunities that are not available on other loan types. Although you can consolidate a federal Perkins loan, make sure you first consider whether any of these forgiveness opportunities may apply to your situation, and be aware that you will lose them if you consolidate.
For more information on the consolidation program and application process, contact the Direct Loan Consolidation Loan Program at 1-800-557-7392 or visit www.loanconsolidation.ed.gov.Return to top