Consolidating Your Student Loan

Three Big Benefits of Consolidation

1. No more variable interest rates on your loans, only fixed rates that never change.
2. Lower monthly payments that fit your budget
3. Only one payment a month, instead of many payments to many lenders.

Here's How Smart People Save Money Consolidating Their College Loans

• The interest rate on your consolidated loan is fixed. It will not change over the life of the loan.
• You can choose to consolidate some or all of your student loans.
• There are no fees for federal consolidation loans, no matter which lender you use.
• You can consolidate one loan, a few loans or all of your loans. You might want to consolidate the loans that have variable interest rates, and exclude the loans with fixed interest rates.
• Each loan can be consolidated only once.
• By consolidating your student loans, you lock in a fixed interest rate that doesn’t change over the life of the loan.
• If you do not consolidate your variable rate student loans, the interest rate on them changes each year on July 1. It could go as high as 8.25%. It is recommended that you consolidate variable rate loans.
• If some of your student loans have a fixed interest rate, consolidation will not improve that rate.
• Each year, the new interest rate for your variable rate loans is announced on June 1. The new rate is effective on July 1. Many students consider consolidating in June, if the July interest rate is going to be higher.
• If you consolidate your loans, you will make one monthly payment to one lender, rather than multiple payments to multiple lenders.
• You can use consolidation to lower the monthly payment by extending the length of the loan. But if you lower the monthly payment, you will pay more in interest over the term of the loan.
• On Perkins and subsidized Stafford student loans, you have a grace period of 6 months after graduation during which the government pays the interest on the loan. If you consolidate these loans before the grace period is completed, you lose the grace period of free interest.
• Consolidating does not raise or lower the interest rate you are already paying. The new interest rate is computed as the weighted average of your current rates, not to exceed 8.25%. The new interest rate is rounded up to the next 1/8 of a point, that is, 0.125%.
• To calculate your weighted average interest rate, go to http://www.mapping-your-future.org/features/dmconsolid.htm. After you’ve determined your weighted average you can calculate your new monthly payment at http://www.mapping-your-future.org/features/loancalc.htm.

More Advantages of Consolidation

• Some lenders will offer you a discount on your interest rate if your monthly payment is automatically deducted from your bank account. If your payments are on time for 3 years, your interest rate will be lowered a full percentage point. This is a valuable perk. Make sure you ask for it.
• You can consolidate your student loans with any lender, not just the lender you borrowed through. This is a change in the regulations which became effective June 15, 2006.
• As always, the interest you pay on your student loans is tax deductible, whether or not they are consolidated. If you are single and making more than $50,000, there is a limit on the amount of interest you can deduct.

When Do I Consolidate?

Disadvantages and Cautions When Consolidation

• Make sure the lender is offering you the Federal Consolidation Program rather than a private consolidation program.
• If you use consolidation to lower your monthly loan payment, it will take longer to repay your loan. And you will pay more interest over the life of the loan. Ask how much interest you will pay in total.
• You are only allowed to consolidate each loan once.
• Private or alternative loans cannot be consolidated with the Federal Consolidation Program. But you can renegotiate private loans with the lender.
• If you consolidate before your grace period or during your grace period, you lose the rest of the grace period.
• Monthly payments and interest charges begin immediately, if you are out of school.
• Perkins loans can be cancelled if you become totally disabled. You give up this feature when you consolidate the loan.
• PLUS loans cannot be consolidated together with other government loans. They must be consolidated separately, because the PLUS loans are always in the name of the parents.
• It often happens that your lender resells your loan to another institution. You might not recognize the name of the holder of your loan.
• Married couples can consolidate their student loans together. However, if married partners consolidate their student loans together and then divorce, each partner is still liable for the entire debt of the other person.
• Find out what late fees are charged on the consolidated loan.
• If you have a Perkins or a Subsidized Stafford loan, it gives you the right to defer payments for up to three years in case of hardship. When you consolidate these loans, you lose the right to defer payments.

The Following Federal Loans Can Be Consolidated

• Subsidized and unsubsidized Federal Stafford Loans (Federal Family Education Loan Program and Federal Direct Loan Program)
• Federal Supplemental Loans for Students (SLS)
• Federal Perkins Loans
• Health Professions Student Loans (HPSL), including Loans for Disadvantaged Students (LDS)
• Health Education Assistance Loans (HEAL)
• Federal Insured Student Loans (FISL)
• Federal Parent Loans for Undergraduate Students (PLUS) (Federal Family Education Loan Program and Federal Direct Loan Program)
• Federal Nursing Loans (NSL)

What Are the Repayment Options on the Consolidated Loan?

• Standard Repayment: Your payments will be a fixed amount each month (minimum payment will be at least $50).
• Graduated Repayment: Your payments start small and then increase over time. Each monthly payment must equal at least the interest accrued on your loan between scheduled payments.
• Income Sensitive Repayment: Your payments are based on your annual income and loan amount. Each monthly payment must at least equal the interest accrued on your loan between scheduled payments.
• Extended Repayment: If you received your first loan on or after October 7, 1998, your repayment term may be extended up to 30 years depending on the total amount you have consolidated.

Collect Your Info

Who Offers a Consolidated Loan?

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