Federal Consolidation Loans

In A Nutshell
If you have several student loans, you can convert them into a single Federal Consolidation Loan
with one interest rate and repayment schedule. When a lender agrees to consolidate your loans, it will
pay off the outstanding balance (including the remaining principal and interest) on your existing loans
and make one Federal Consolidation Loan to replace them.

  • The interest rate on a Consolidation Loan is the “weighted average” of the interest rates on the loans being consolidated. In the example, if the Stafford interest rate is 7.5% at the time of consolidation, the rate on the Consolidation Loan (including the 6% Perkins loan) would be 7.235%.
  • Depending on the loan amount, Consolidation loans can be repaid over 10-30 years. This may be longer than the repayment period on your current loans. A longer repayment period means a lower monthly payment—but it also means that you’ll be paying more interest over the life of the loan, so your total repayment amount will be higher. If you’re comfortable with higher monthly payments, you have the right to ask for a shorter repayment period.  You can also choose to prepay the loan.
  •  In addition to the standard repayment plan, a lender must offer graduated, and incomesensitive repayment plans for Federal Consolidation Loans. If you expect a significant increase in income in the next few years, the graduated and income-sensitive plans are a way to start out with lower monthly payments, with higher payments later on, when you can afford them.
  • There’s no grace period—the first payment on your Consolidation Loan will usually be due within 60 days of the date of disbursement.
  • You get the same deferment and forbearance provisions as for a Stafford Loan—in particular, the in-school deferment and the unemployment and economic hardship deferments.
  • You can consolidate student loans that are in their grace period, as well as loans that are in repayment. However, you lose the benefit of any remaining grace period.
  • You’re not required to consolidate all of yourstudent loans (Stafford, PLUS, Perkins, Health Professions Loans, and older SFA loans). However, if you exclude a defaulted loan from consolidation, you must make satisfactory arrangements to repay the defaulted loan.
  • There are no insurance premiums or other fees for loan consolidation.
  • Unlike Stafford and PLUS loans, which have variable interest rates that are recalculated each year, the interest rate on your Federal Consolidation Loan is fixed for the life of the loan.

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