Consolidation

WHAT IS LOAN CONSOLIDATION?

The Higher Education Act (HEA) provides for a loan consolidation program under both FFEL and Direct Loans. Under these programs, a borrower's underlying loans are paid off and a new consolidation loan is created. These programs simplify loan repayment by combining into one new loan several types of Federal education loans that may have different terms and repayment schedules or may have been made by different lenders. In the case of a Direct Loan consolidation, the interest rate may be lower than on one or more of the underlying loans. In both programs the monthly repayment amount on a consolidation loan is usually lower and the amount of time to repay may be extended beyond what was available in the separate loan programs. These features should result in more manageable debt, and make borrowers less prone to default.

You do NOT have to include all of your loans in a consolidation. For example, if you want to keep the Perkins loan separate, because you might be eligible for partial cancellation, you may do that. Do be aware this will result in a loan payment separate from the consolidated loan payment. If you anticipate the additional loan payment would create a financial burden, you should probably include the Perkins loan in the consolidation. A defaulted student loan does harm your credit rating. Finally; because interest in a consolidation is a weighted average of your existing loans, Perkins, Pharmacy and Nursing loans are fixed rates, they neither help nor hurt your overall interest rate.

You should also check with your Stafford loan lender for information on whether a consolidation loan is right for you. Keep in mind the following:

Benefits of consolidation:

  • Locking into a fixed interest rate for the life of the loan.
  • Combining payments into one affordable monthly payment with single point of contact.
  • Deferment eligibility.
  • Extend your repayment, 12 to 30 yrs based on the amount borrowed.
  • Choose a flexible repayment plan that works for you.

Drawbacks of consolidation:

  • Federal Perkins and Nursing Loan borrowers-Interest will begin as soon as you consolidate rather than 9 months after you leave school (12 months for Health Professions Pharmacy Loans);
  • Perkins Loan borrowers will forfeit all cancellation benefits otherwise available to Perkins borrowers.
  • Primary Care Loans for med students and Institutional Loans cannot be included in a consolidation loan.
  • Possible higher interest rate than the rate on some of the loans currently being held. (All federal loans held by the Bursar's Office that are eligible for consolidation are at a fixed 5%.)
  • Possible payment of more interest with repayment over a longer period of time.
  • Loss of grace period if consolidated while still "in school".
  • May affect deferment eligibility.
  • May lose borrower benefits already in place.

WHAT LOANS MAY BE CONSOLIDATED?

Loans that may be consolidated under both the FFEL and Direct Loan consolidation programs include:

  1. Student loans made under FFEL (subsidized, unsubsidized, SLS, GSL, ALAS, and FISL). (Note: A prior FFEL loan may be included in a Direct Consolidation Loan only if the borrower is unable to obtain an FFEL Consolidation loan with income-sensitive repayment terms that are acceptable

  2. Federal Perkins Loans (including National Defense and National Direct Student Loans)

  3. Health related education loans including Health Professions Student Loans (HPSL), Health Education Assistance Loans (HEAL), Nursing Student Loans (NSL), and Loans for Disadvantaged Students (LDS).

  4. Loans made under the FFEL PLUS program, and

  5. Prior FFEL Consolidation loans.

In addition to the loan types noted above, the law allows only the Federal Direct Consolidation Loan Program to consolidate Direct Loans. These include:

  1. Subsidized student loans
  2. Unsubsidized student loans
  3. Direct PLUS loans
  4. Prior Direct Consolidation loans.

These Direct Loans may not be consolidated under the FFEL program.

If you have questions regarding consolidation or need information about your Federal loans, you may contact your Stafford Loan lender or access the following websites.

The Bursar's Office does not support or endorse any one loan consolidation agency. The following consolidation options are listed for your convenience only.