My last post generated questions about Student Loan Consolidation. Just like repaying student loans, consolidation is a very timely topic as the class of 2013 enters repayment this month.
Student Loan Consolidation usually comes up as the ultimate solution for students having trouble repaying their loans. This is the first in a series of posts on the topic. This post will explain what Student Loan Consolidation is and how you apply for one. The second post will cover some of the reasons you may not want to get a consolidation loan, while the third will cover consolidation of private student loans.
What is Student Loan Consolidation?
Each loan you take out during your college career is a separate loan. They are not automatically combined into one loan at graduation. If all your loans were with one lender, you will only submit one payment and they will allocate it to each loan. Many students, especially those who borrowed before the 2010/11 Academic year may have their loans split between multiple lenders in the old Federal Family Education Loan (FFEL) program and the Federal Direct Student Loan (FDSL) program. Those with student loans made prior to July 1, 2006 could have individual loans with different interest rates. Student Loan Consolidation allows borrowers to combine these loans into one single loan with one single monthly payment.
What Loans are Eligible for Student Loan Consolidation?
All federal student loans are eligible for Student Loan Consolidation including:
- Subsidized and Unsubsidized Stafford Loans made under the FFEL program
- Subsidized and Unsubsidized Stafford Loans made under the Federal Direct Loan Program
- Parent Loans for Undergraduates (PLUS)
- Graduate PLUS Loans
- Federal Perkins Loans
- Health Education Loans (HEAL)
It’s worth noting that while all these loan types can be included in Student Loan Consolidation, you must have either a FFEL or Direct Loan to participate in the program.
What are the Benefits of Student Loan Consolidation?
The largest single benefit of student loan consolidation for most students is the ability to have all their federal student loans in one place. While many can manage tracking loans at multiple servicers with multiple payments, other prefer the simplicity of a single payment. Another benefit is that a consolidation loan allows the borrower to extend the term of their federal student loans. Typically, federal student loans have a 10 year repayment period. The longer terms available through federal consolidation loans allows students to lower their monthly payments significantly. It’s worth noting this will increase the overall cost of the loan to the borrower. Finally, the borrower may be able to reduce the rates on their student loans, especially if they have a variable rate loan from before July 1, 2006.
How do I Start a Student Loan Consolidation?
The first step is to make sure you know where all your student loans are located. The best way to do this is to check the National Student Loan Data System (NSLDS). This is the U.S. Department of Education’s central database for student aid. NSLDS receives data from schools and players in the student loan program providing a centralized, integrated view of federal student loans so borrowers can access and inquire about their federal student loans. It’s an invaluable tool for students who may not have kept good records while they are in school
Once you have all your information together, you can check out this calculator provided by the Department of Education. Just enter data about each of your federal student loans and the calculator will tell you what your interest rate will be and which repayment plans you will be eligible for. If you like what you see then you can apply for a Federal Direct Consolidation Loan.
Before you hit enter on Student Loan Consolidation though wait for the next post in which I will discuss some of the downsides of Student Loan Consolidation and other things to consider before you apply to the program.