How Does One Consolidate There Student Loans
Consolidations are very similar to refinancing a loan, such as a mortgage. You can consolidate all loans, just some, or even just one of your college student loans. Consolidating with one of the federal college student loan programs may be a good strategy to help lower your monthly payments or to get out of default, however, it is not always a good idea.
Until July 1, 2006, interest rates on federal college student loans were variable, changing according to a formula every July 1. Consolidations will lock in a fixed rate based on the average interest rates of all the student loans included, creating one student loan with a single rate, and often, significant savings in interest over the life of a student loan. Student loans made after July 1, 2006 have a fixed interest rate of 6.8%, so consolidating newer student loans may not save very much in interest.
A s you weigh the pros and cons of consolidating your student loan, keep in mind that timing is critical. With just a very few exceptions, you get only one chance to consolidate with the government college student loan programs.
It is very dangerous to consolidate federal college student loans into a private student loan consolidation. You will then lose your rights under the federal college student loan programs once you choose to consolidate with a private lender. These rights will include deferment, forbearance, cancellation, and affordable repayment rights. Federal student loan consolidations generally have lower interest rates.
Federal Government Loan Consolidation
Student loan consolidations are available through both the FFEL and Direct Student Loan programs. With a few very important exceptions, the terms of the two consolidation programs will be the same. One of the most important differences is that the Direct Student Loan Program has a more flexible income contingent repayment plan.
Under the Direct Student Loan Consolidation Program, you can consolidate Subsidized and Unsubsidized Stafford Student Loans, Supplemental Student Loans for Students (SLSs), Federally Insured Student Loans (FISLs), PLUS Loans, Direct Student Loans, Perkins Student Loans, Health Education Assistance Student Loans (HEALs), and just about any other type of federal financial student loan. Student loans that are not eligible for consolidation include state or private student loans that are not federally guaranteed.
Although all of these different student loans may be consolidated, you must have at least one outstanding FFEL or Direct Student Loan to obtain a Direct Student Loan Consolidation. This means, for example, that a Perkins Student Loan on its own cannot be consolidated into a Direct Student Loan. If the qualifying loan is a FFEL student loan, you must also certify that you were unable to obtain a FFEL Consolidation or unable to obtain a FFEL Student Loan Consolidation with acceptable income sensitive repayment terms and that you are eligible for the Income Contingent Repayment Plan.
FFEL Student Loan Consolidation lenders do not have to include non-FFEL student loans in a new consolidation loan. However, they may do so at their discretion. Non-FFEL student loans cannot be consolidated into an FFEL student loan consolidation without an FFEL student loan being included in the consolidation. Many FFEL lenders are no longer making student consolidation loans. You should not let your FFEL student loan lender discourage you from consolidating with the Direct Student Loan program if you think this is a good option for you.
You can consolidate with either program during the grace periods, once you have entered repayment, or during periods of deferment or forbearance. Borrowers in default may also consolidate in some circumstances.
Student loan consolidation was previously available to borrowers while they were still in school. However, Congress eliminated this right in 2006. You can consolidate during the grace periods. Congress has also eliminated joint consolidations for spouses, effective July 1, 2006.
