Federal loan consolidation may be neither necessary nor a good option for everyone. Consider consolidation if you are making multiple loan payments, or if you have at least one FFEL loan and intend to apply for loan forgiveness under the Public Service Loan Forgiveness Program. To determine the type of loans you have, check the National Student Loan Data System (NSLDS). Direct Loans will be labeled as “Direct” and FFEL loans will be labeled as “FFEL” or simply as “Stafford” or “Graduate PLUS.”
When consolidating federal loans, a weighted average is applied to a single loan. This means, depending on the amount borrowed, the new interest rate will fall somewhere between the lowest and the highest rate on the original loans. If you have borrowed more Grad PLUS than Stafford loans, the weighted average will lean towards the Grad PLUS interest rate. To estimate the interest rate on your loans (see your NLSDS record) use the loan calculator.
Benefits of Consolidation
- Single monthly payment
- Lower monthly payment
- Eligibility for Public Service Loan Forgiveness with previously borrowed FFEL loans.
Disadvantages of Consolidation
- Pay more over the life of the loan.
- Lose the grace period on any loans included in the consolidation unless electing to have consolidation occur at the end of the grace period (suggested).
- Consolidation of a Perkins loan is not suggested as the borrower will lose any cancellation benefits with consolidation. (Unconsolidated Perkins loans will not qualify for PSLF.)
- Prior lender repayment incentives may not carry forward into the consolidation loan or may have to be repaid.
How to Consolidate
Go to www.loanconsolidation.ed.gov and click on “Borrower Services” to complete the application process.
The consolidation process may take 4-6 weeks. Borrowers currently in repayment will need to continue to make payments until receipt of notice that consolidation is complete and a new monthly payment amount is established.