Loan Paying Tips: Loan Consolidation 101

Sliced red appleConsolidation loans combine multiple student or parent loans into one bigger loan. For borrowers with multiple federal loans, Federal Direct Consolidation Loans offer numerous benefits:
• Payment management is simpler with one loan servicer and one monthly payment.
• Multiple repayment plan options including income-driven repayment plans may be available, based upon meeting eligibility requirements.
• Eligibility for deferment options may be renewed or modified.
• Subsidy benefits remain on the subsidized portion of the consolidation loan.
• Consolidation is free.

Federal Direct Consolidation loan basics:
• Eligible borrowers must have at least one Direct Loan or Federal Family Education Loan (FFEL). The borrower can: (1) consolidate a delinquent Federal Consolidation Loan that the lender has submitted to the guaranty agency for default aversion; (2) consolidate a defaulted Federal Consolidation Loan; (3) consolidate a Federal Consolidation Loan to use the Public Service Loan Forgiveness Program; or (4) consolidate a Federal Consolidation Loan to use the no accrual of interest benefit for active duty service members.
• When loans with different interest rates are combined, the weighted average interest rate will be rounded up to the nearest 1/8th of a percent but will not exceed 8.25%.
• Students and parent borrowers can each consolidate their education loans, but they cannot combine their loans.
• Students cannot consolidate their loans while still in school.

It’s important to remember that when Parent PLUS borrowers consolidate, they may lose their eligibility to defer payments while the student for whom the loan was granted is in-school or post-enrollment. For borrowers who are interested in consolidation and an income-driven repayment plan, it’s important to note that the number of payments applied toward forgiveness on these repayment plans start over when a borrower consolidates (if eligible). Therefore, they may want to consolidate early in repayment.

If you are interested in consolidating loans, click here to do so.

Learn more about the consolidation process and how consolidation may affect your loan limits.