Federal Student Loan Consolidation FAQs

Federal student loan consolidation is a helpful financial tool that allows student loan borrowers to merge several types of federal student loans into one new loan with a lower monthly payment. The laws and regulations surrounding federal student loan consolidation are designed to provide optimal benefits to you, the borrower.

FAQ Contents

• What are the benefits of federal consolidation loans?
• Who is eligible for Stafford loan consolidation?
• What is the interest rate?
• Why consolidate in my grace period?
• What types of loans may be consolidated?
• What about private loan consolidation?
• What about credit cards, car loans, etc.?
• What about consolidating with my spouse?
• I consolidated a year ago, can I do it again?
• How is the consolidation loan repaid?
• Are there any fees to consolidate?
• Is there a credit check required to consolidate?
• Are there any early payment/repayment fees or penalties?
• How do I apply for a Consolidation loan?
• Do I continue making loan payments while my consolidation application is in process?
• How long does a consolidation take?
• What do I do if I'm not eligible?
• Can I defer or forbear?
• Are you a government or private agency?
• Why do Stafford loan rates change?

Get Started on your Federal Consolidation Loan

What are the benefits of federal consolidation loans?

• Reduces your monthly payment - you'll have more cash every month!
• Locks in your interest rates - protect yourself from future rate increases
• Simplifies your finances - make only one payment a month
• Improve your credit rating
• Saves you money today when you need it most
• Provides flexible repayment options

Federal student loan consolidation allows borrowers (parents or students) to lock in today's low rates and to combine several federal student loans into one loan to simplify loan repayment. Because repayment can be spread over a longer time period, your monthly payment amount will likely be lower. Because there are no penalties for extra or early repayment, you can make larger monthly payments when it becomes affordable to.

Who is eligible for federal loan consolidation?

You must have at least two federal student loans (through the Direct Loan, FFEL program, or both) in good standing.

Here are the things that are not required:

• You do not need to be employed to consolidate your loans.
• You do not need to have any form of collateral.
• You do not need a cosigner of any kind.

What is the interest rate?

The rate will be a fixed rate equal to a weighted average of the interest rates on your existing loans rounded up to the nearest one-eighth of one percent. Currently, the maximum interest rate for federal loan consolidation is set at 8.25%.

You can discover the full details of your loan balances, types, and interest rates by visiting the Department of Education's Direct Loan Servicing website, or calling their phone number at (800) 848-0979.

Consolidations done during the loan "grace" period will be based on a weighted average of the in-school interest rates, which are generally lower.  Use our Loan Calculator to help you figure out your new rate and monthly payment.

Get Started on your Federal Consolidation Loan

Why consolidate in my grace period?

If you are in your six-month post-graduation grace period, you can apply for and receive additional savings. During this six months, Stafford loans disbursed before July 1, 2006 have a 0.6% lower rate. By consolidating during this period, you are able to lock in this discounted rate. If you wait until your grace period is over your rate will increase by 0.6%. Your application must be received before your grace period ends in order to obtain the additional 0.6% discounted rate.

If your Stafford loans were originated after July 1, 2006, you will not be able to take advantage of the interest rate discount.

What types of loans may be consolidated?

• Stafford Loans - Subsidized and Unsubsidized
• Federal Direct Stafford Loans - Subsidized and Unsubsidized
• HEAL/HPSL Student Loans
• Parent PLUS Loans
• Federal Direct Parent PLUS Loans
• Federal Consolidation Loans
• Federal Direct Consolidation Loans
• Perkins Loans
• Nursing School Loans and more...

What about private loan consolidation?

It's not a bad idea to consolidate your private student loans. What is a bad idea is combining federal and private student loans, which results in a consolidated private loan. This is bad for many reasons:

1. You cannot defer payments on a private loan consolidation if you want to go back to school. You can with federal loan consolidation.
2. You cannot forbear payments in case of economic hardship on a private loan consolidation.
3. You cannot claim interest as a tax deduction on a private loan consolidation.
4. You cannot apply for forgiveness on a private loan consolidation. Certain types of work, such as federal volunteer programs, teaching in economic development zones, and military service, among others, can qualify you to have part or all of your federal loans dismissed by the government.
5. If you should pass away, private loans are passed to your next of kin. Federal loans are forgiven.
6. Private loan consolidation very often has variable rates, which means you cannot lock in today's current historic low rates. Those rates may be tied to volatile indexes like the Prime Rate, which can jump as high as 13%.

Consolidating your federal Stafford loans first is very important, because in doing so, you reduce the number of open lines of credit (loans) you have. This boosts your credit score, enabling you to obtain better terms for private loan consolidation. For more information, visit our private consolidation section.

Get Started on your Federal Consolidation Loan

What about credit card consolidation, car loans, etc.?

Unfortunately, you cannot combine non-federal loans of any kind with federal Stafford loans. Why? Because they are different types of loans. Federal Stafford loans are backed by the US Government; if a Stafford borrower doesn't pay their loans, the government pays the lender, and then obtains payment from the student. The lending institutions (typically banks) know that they will always get their money back, which is why they can offer Stafford loans at such low rates compared to other kinds of loans.

Private loans, such as credit cards, car loans, mortgages, etc. are backed by an individual's creditworthiness and collateral. Lending institutions take higher risks in loaning money privately than through the government. The government and the banks will not permit low-risk loans to be combined with high risk loans, and so you cannot consolidate other forms of debt with your federal Stafford loans.

However, consolidate Stafford loans to improve your credit rating, and you may be able to qualify for better interest rates on your private loans when you refinance them.

What about consolidating with my spouse?

Spousal consolidation is no longer permitted as of July 1, 2006. The law that allowed this was repealed due to problems with married students getting divorced, but still being responsible for the entire loan amount of both them and their ex-spouse.

I consolidated in the past, can I do it again?

It depends. Consolidation is the combination of many loans into one.  If you have consolidated in the past with someone other than the US Department of Education, you can't do it again unless:

• You have new loans that were not included in the original consolidation.
• Or, you have multiple consolidations from different lenders.

How is the consolidation loan repaid?

The first payment is due no more than 60 days from the date the Consolidation loan is disbursed. Repayment schedule choices include:

• Standard payments (fixed monthly payments over a fixed time)
• Graduated payments (payments which gradually increase over the years)
• Income based repayment (variable payment amounts based upon annual income) and
• Extended payments (more than $30,000 over a 25 year period or more than $60,000 over a 30 year period).

Are there any fees to consolidate?

No, there are no fees to consolidate federal Stafford loans.

Is there a credit check required to consolidate federal loans?

No, there is no credit check, because your federal Stafford loans are guaranteed by the US Department of Education. However, consolidation will improve your credit rating by paying off your existing loans and reopening a master consolidation loan.

Are there any early payment/repayment fees or penalties?

No, there are no early repayment penalties for a Stafford loan consolidation. The government wants its money back. To make extra payments, consolidate now, and then when your payment schedule begins, simply specify "Extra payment to principal" on your early payments.

Did you know that early repayments are interest-free? It's true! Every dollar beyond your required monthly payment is paid towards the principal - it's like an interest-free payment!

Get Started on your Federal Consolidation Loan

How do I apply for a Consolidation loan?

Consolidations currently can be completed online, by phone, and through paper application. If you are looking for information or want to start the federal consolidation process by phone, you can contact the Department of Education Direct Loan Center at (800) 828-0979. If you are looking to apply via a paper application, navigate to the Direct Consolidation loan website to download and print out the appropriate paperwork.

Do I continue making loan payments while my consolidation application is in process?

Yes! Until you are notified that your loans have been paid off through the consolidation process, you should continue to make your Stafford loan repayments. Since consolidation can take anywhere from 30 - 90 days, it's important that you don't fall behind on payments. Once your consolidation is complete, Direct Loan Servicing will send you a new repayment schedule, with your new monthly payment and due date.

How long does a consolidation take?

Consolidation can take anywhere from 30 to 90 days; in rare cases it may take longer. The reason this takes as long as it does is that the government retrieves payoff statements (called LVCs - Loan Verification Certificates) from your lenders. Some lenders are more cooperative than others.

What do I do if I am not eligible to consolidate?

If you've previously consolidated, have loans with just one lender, loans totaling less than $20,000, or other conditions which prohibit you from consolidating your Federal Stafford loans with us, there are a few options you can pursue:

• Consider refinancing a home or investment property to pay off the loan. If you've previously consolidated at high rates, using this option will give you tax benefits and still be cheaper than the rates you are paying now.
• Consider a personal line of credit from your bank or credit union.
• Consider a private loan consolidation.

Can I defer or forbear?

Yes! One of the greatest benefits of federal Stafford loan consolidation is that you retain all your federal borrowing privileges, such as:

• Deferment of your consolidation payments when you return to school
• Forbearance of your consolidation for up to 36 months
• Forgiveness of your entire loan if you pass away

How do you defer? Once you consolidate, you will receive paperwork for your payment schedule. At that time, you can request a deferment or forbearance form.

To get forms, click here!

Are you a government or private agency?

StudentLoanNetwork.com is a private company and a member of the Student Loan Network. Click here to read more about us.

Why do Stafford loan rates change?

See our page on the relationship between Stafford loans and Treasury bills!

Why Consolidate?

If you have any variable rate Federal loans, the very best time to consolidate your Stafford loans is immediately after graduating, before your grace period ends. Doing so allows you to lock in the lowest possible interest rate on your loans.

Consolidating is a great option whenever you want to increase your monthly cash flow - by consolidating, you extend your repayment term and get additional discounts on your existing rates, which reduces the monthly payment you make.

Consolidating now is a great time, because interest rates are projected to continue rising, so consolidate your Stafford loans right now!

Repayment Guidelines

Depending on the total amount of your consolidation loan, the government has set the following repayment periods:

Get Started on your Federal Consolidation Loan