Taken from The Student Guide of the U.S. Department of Education
A Consolidation Loan is designed to help student and parent borrowers
simplify loan repayment by allowing the borrower to consolidate several
types of federal student loans with various repayment schedules into
one loan. You can even consolidate just one loan into a Direct Consolidation
Loan to get benefits such as flexible repayment options. If you have
more than one loan, a Consolidation Loan simplifies the repayment process
because you make only one payment a month. Also, the interest rate on
the Consolidation Loan may be lower than what you’re currently
paying on one or more of your loans. If you’re in default* on a
federal education loan, you may receive a Consolidation Loan if certain
conditions are met.
Both the Direct Loan Program and the FFEL Program offer consolidation
loans. Direct Consolidation Loans are available from the U.S. Department
of Education. FFEL Consolidation Loans are available from participating
lenders such as banks, credit unions, and savings and loan associations.
Direct Consolidation Loans
Who is eligible for a Direct Consolidation Loan?
You can get a Direct
Consolidation Loan during your grace period, once you have entered repayment,
or during periods of deferment or forbearance.
You must consolidate at least one Direct Loan or FFEL Loan. If you don’t
have a Direct Loan, but you have a FFEL Loan, you must first contact
a FFEL lender who makes FFEL Consolidation Loans to ask about obtaining
a FFEL Consolidation Loan. If you are eligible for the Direct Loan Income
Contingent Repayment Plan and you are unable to obtain a FFEL Consolidation
Loan or one with income-sensitive repayment terms that are acceptable
to you, you are eligible to apply for a Direct Consolidation Loan.
If you are still in school, you may apply for a Direct Consolidation
Loan for any Direct Loans or FFEL Loans if you are attending at least
half time* and have at least one Direct Loan or FFEL Direct Consolidation
Loans Program loan in an in-school period. (Generally, your loan is in
an in-school period if you have been continuously enrolled at least half
time* since the loan was disbursed.) In addition, if the school you are
attending is not a Direct Loan school, at least one of the loans that
you consolidate must be a Direct Loan. If you’re in default* on
a federal education loan, you may be able to receive a Direct Consolidation
Loan. For more information, contact the Loan Origination Center’s
Consolidation Department at the number listed below.
Loan Origination Center’s Consolidation Department
1-800-557-7392 (This is a toll-free number.)
If you are hearing impaired, you may call the TDD number at
1-800-557-7395
What kinds of loans can be consolidated under a Direct Consolidation
Loan?
Most federal student loans and PLUS Loans can be consolidated. All
the loans discussed in the Guide are eligible for consolidation. The
Loan
Origination Center’s Consolidation Department can give you a complete
listing of eligible loans. Loans that are consolidated into a Direct
Consolidation Loan fall into one of three categories:
- Direct Subsidized Consolidation Loans
- Direct Unsubsidized Consolidation Loans
- Direct PLUS Consolidation Loans
If you have loans from more than one category, you still have only
one Direct Consolidation Loan and make only one monthly payment.
However,
interest rates differ depending on the loan category, as do repayment
and deferment options for the borrower.
What is the interest rate on a Direct Consolidation Loan?
For Direct
Subsidized and Unsubsidized Consolidation Loans, the interest rate is
variable but cannot exceed 8.25 percent. For Direct PLUS Consolidation
Loans, the interest rate is also variable and may not exceed 9 percent.
These interest rates are adjusted each year on July 1.
How do I pay back my Direct Consolidation Loan?
Generally, all the Direct
Loan repayment plans are available to borrowers of Direct Consolidation
Loans. However, some restrictions may apply.
For example, Direct PLUS Consolidation Loans are not eligible to be repaid
under the Income Contingent Repayment Plan.
How can I get a Direct Consolidation Loan?
You’ll be given more information about consolidation loans during
entrance and exit counseling sessions at your school. You may also contact
the Loan Origination Center’s Consolidation Department at the number
listed on page 20.
FFEL Consolidation Loans
Who is eligible for a FFEL Consolidation Loan?
You can get a FFEL Consolidation
Loan during your grace period or once you have entered repayment. If
you’re in default* on a federal
education loan, you may be able to receive a FFEL Consolidation Loan.
For more information, contact a lender that participates in the FFEL
Consolidation Loan Program.
What kinds of loans can be consolidated under a FFEL Consolidation Loan?
Most
federal student loans and FFEL PLUS Loans can be consolidated. Most of
the loans discussed in the Guide are eligible for consolidation;
Direct Loans can now be consolidated under a FFEL Consolidation Loan.
A participating lender can give you a complete listing of eligible loans.
There are two types of FFEL Consolidation Loans:
- Subsidized FFEL Consolidation Loans
- Unsubsidized FFEL Consolidation Loans
If all of the loans you consolidate are subsidized, you’ll receive
a Subsidized FFEL Consolidation Loan. If any loan you consolidate is
unsubsidized, you’ll receive an Unsubsidized FFEL Consolidation
Loan for all loans, including those that were subsidized.
What's the interest rate on a FFEL Consolidation Loan?
The interest rate
for your FFEL Consolidation Loan will be the weighted average of the
original interest rates of the loans being consolidated.
The rate is rounded up to the nearest whole percent.
How do I pay back my FFEL Consolidation Loan?
All the FFEL repayment
plans are available to borrowers of FFEL Consolidation Loans.
How can I get a FFEL Consolidation Loan?
You’ll be given more information
about consolidation loans during entrance and exit counseling sessions
at your school. You may also contact
the customer service department for your lender to ask if they participate
in Federal Consolidation Program and to request an application or more
information.
