Consolidation Loan Q&A

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    Consolidation Loan Basics                         Consolidation Loan Eligibility

    Applying for a Consolidation Loan             Consolidation Loan Repayment

    Consolidation Loan Terms

Consolidation Loan Basics

What is a federal student consolidation loan?
A federal consolidation loan allows you to combine all of your individual federal student loans into a single loan with one monthly payment. Even if you only have one federal student loan, you may still be able to consolidate and turn your variable interest rate loan into a fixed interest rate loan.

How do I benefit from a federal student consolidation loan?
There are several benefits to consolidating your student loans:

• You can reduce your monthly student loan payments (which frees up your money for other things such as a new car payment or even a mortgage payment)
• You can simplify your life by only having one bill to track.
• You can get flexible repayment options when you run into money problems. (For example, you can temporarily defer your monthly payments if you become unemployed)
• You can improve the appearance on your credit report. (It looks better on your credit to have just one consolidation loan in repayment rather than several individual loans.)
• You can get a fixed interest rate. 

What are the requirements of a federal student consolidation loan?

• Your loans must be current and up-to-date. (not in default)
• You must have at least one eligible federal student loan. The following federal education loan are eligible for student loan consolidation:
• FFELP Stafford Loans (both subsidized and unsubsidized)
• Health Education Assistance Loans
• Health Professions Student Loans
• SLS Loans
• Federal Insured Student Loans (FISLs)
• Auxiliary Loans to Assist Student (ALAS)
• Direct PLUS Loans (Parents Loans)
• FFELP PLUS Loans
• Direct Stafford Loans
• Federal Perkins Loans
• Nursing Student Loans
• You must be out of school or enrolled below part-time status. (Your loans must be in grace or in loan repayment).

What is the grace period?
A grace period is the transition time between when you leave school and when your first student loan payments are due. Many education loans provide the benefit of a grace period to give you time to "get on your feet" before you have to make a loan payment. The grace period for Stafford Loans is 6 months and for Perkins Loans is 9 months.

PLUS (Parent) Loans and Consolidation loans DO NOT have a grace period. You can only get one grace period per loan and it cannot be renewed. For example, if you have Stafford loans and your last day of school is May 5th then your grace period begins on May 5th and ends 6 months later, on November 30th. In this example, your first payment on your loans would be due in December.


What is the interest rate on a federal student consolidation loan?
The interest rate on a federal consolidation loan is calculated by taking the weighted average of the interest rates for all the loans to be consolidated, and rounding up to the nearest one eighth of one percent. The interest rate on a federal consolidation loan cannot exceed 8.25 percent. Here’s an example:

Let’s say you have four Stafford loans with:

$2625 balance, 7.14% interest rate
$3000 balance, 7.14% interest rate
$3500 balance, 6.54% interest rate
$5500 balance, 6.54% interest rate

To calculate the interest rate on your federal consolidation loan:

1. Multiply the balance of each loan by that loan’s interest rate:

$2625 x .0714 = $187
$3000 x .0714 = $214
$3500 x .0654 = $229
$5500 x .0654 = $360

2. Add those results, and divide the sum by the balance of all the loans:

$187 + $214 + $229 + $360 = $990
$990 / $14,625 = .068 or 6.8%

3. Round that result up to the nearest 1/8th of one percent:

In our example, 6.8% is rounded up to 6.875%

Note: This is how every lender must calculate your federal consolidation loan interest rate. Lenders may offer discounts off of this interest rate. See our BudgetExtender Consolidation Loan interest rate discount.

What types of student consolidation loans are available?
There are two types of consolidation loans for refinancing your education debt:

Federal consolidation loans – only includes Federal education loans.

Private consolidation loans – can include any private loan debt, any federal education loan, and may even allow you to include other debts, such as credit cards, that were used to help pay your college expenses. Although you are able to include your federal loans in a private consolidation loan, we recommend that you do not do this. This is because private consolidation loans typically have higher interest rates (based on your credit), and the repayment terms are not as flexible.

When is consolidating a good option?

• You need a lower monthly payment
• You have several loan accounts with separate payments that you want to combine into one convenient monthly payment
• You want a fixed interest rate
• You want more time to pay off your student loans

If you have less than $10,000 in education debt, consolidating your loans will not reduce your monthly payment and many lenders may not offer consolidation if your total loan balance is that low. If that’s your situation, you should ask your existing lender about combined billing for your accounts or alternate repayment plans that may temporarily provide lower monthly payments.

Consolidation Loan Eligibility

Can I consolidate if my loans have defaulted?
If you have education loan in default, check with the lender that you are considering for consolidation. Consolidating defaulted education loans may vary from lender to lender.

Can I consolidate additional loans if I return to school?
Yes. If you have already consolidated your loans and then go back to school and receive additional education loans, you can apply for another consolidation loan that will combine your old consolidation loan with your new education loans. Also, if you forgot to include a federal education loan during your original consolidation process, you can include that loan in the new consolidation loan as well.

Can I consolidate if I am delinquent on my loans?
Yes. If you are not current on your loan payments you will still be able to consolidate your loans. Be sure to get the details from the lender consolidating your education loans.

Which student loans can I consolidate?
These education loans are eligible for the Federal Consolidation Loan Program:

• FFELP Stafford Loans (both subsidized and unsubsidized)
• Health Education Assistance Loans
• Health Professions Student Loans
• SLS Loans
• Federal Insured Student Loans (FISLs)
• Auxiliary Loans to Assist Student (ALAS)
• Direct PLUS Loans (Parents Loans)
• FFELP PLUS Loans
• Direct Stafford Loans
• Federal Perkins Loans
• Nursing Student Loans

Any education loans you have that are not on this list may still qualify for consolidation. If you have private loans, you may need to get a Private Consolidation Loan which can include any private loan debt and may even allow you to include other debts, such as credit cards, that were used to help pay your college expenses.

Although you are able to include your Federal loans in a private consolidation loan, we recommend that you do not do this. This is because private consolidation loans typically have higher interest rates, and the repayment terms are not as flexible.

Applying for a Consolidation Loan

Can I consolidate while still in school?
If you are still in school at least half-time you cannot complete a federal consolidation loan application. However, if you are graduating within the next six months you can begin the application process.

Consolidation Loan Repayment

How Do I Determine The Term For A Consolidation Loan?
The amount of time it takes to pay off your consolidation loan really depends on you. The actual term (length of repayment) is based on your total education debt -- not just the loans you are consolidating. If you have more education loans than the ones we are consolidating, we consider that debt when determining your repayment term options.

The maximum term is based on your total education loan debt. Check out the chart below to see what repayment terms are available for you.

Maximum Term of Consolidation Loans:

• $10,000 - $19,999 (15 years)
• $20,000 - $39,999 (20 years)
• $40,000 - $59,999 (25 years)
• $60,000 or more (30 years)

So even if you take the longest possible term, with the lowest possible monthly payment, you can always pay more in any given month. (By paying more, you pay the loan off sooner, which results in you paying less interest over the life of the loan.)

Can I pay off my consolidation loan early without any penalties?
Yes. You can pay off your federal consolidation loan at any time without penalty. However, there may be a requirement that you cannot pay off the loan within a certain period of time in order to qualify for a particular discount.

What are the repayment options for a consolidation loan?
There are several different repayment options for a consolidation loan and you can choose the one that works best for you.

- Standard Repayment Plan: Your monthly payments are fixed over the life of the loan.

- Graduated Repayment Plan: This repayment option will allow you to have a lower monthly payment for the first few years and then an increased monthly payment thereafter.

• For the first 2 years your monthly payments will be interest-only.
• For the next 3 years, you will continue to pay the interest and you will also pay off some of the principal.
• For the remaining life of your loan, you will be put on a standard repayment plan.

- Income-Sensitive Repayment Plan: Your monthly payment amount will vary each year (up to 5 years) based upon your annual income.

Can I get tax deductions for interest I've paid on my student loans?
Yes. Your student loan interest is tax deductible. The maximum you can deduct for student loan interest paid is $2,500 per tax return. The instructions on the 1040 tax form show you how to compute your deduction based on your income level. There are some income limits. If you are:

Married and filing jointly – Your adjusted gross income must be under $135,000 to get any deduction and must be $100,000 or less to get the full $2,500 deduction.

Filing as single, head of household or qualifying widow(er) – Your adjusted gross income must be under $65,000 to get any deduction and must be $50,000 or less to get the full $2,500 deduction.

Consolidation Loan Terms

Consolidation Loan Interest Rate
The interest rate on a federal consolidation loan is calculated by taking the weighted average of the interest rates for all the loans to be consolidated, and rounding up to the nearest one eighth of one percent. The interest rate on a federal consolidation loan cannot exceed 8.25 percent. Here’s an example:

Let’s say you have four Stafford loans with:

$2625 balance, 7.14% interest rate
$3000 balance, 7.14% interest rate
$3500 balance, 6.54% interest rate
$5500 balance, 6.54% interest rate

To calculate the interest rate on your federal consolidation loan:

1. Multiply the balance of each loan by that loan’s interest rate:

$2625 x .0714 = $187
$3000 x .0714 = $214
$3500 x .0654 = $229
$5500 x .0654 = $360

2. Add those results, and divide the sum by the balance of all the loans:

$187 + $214 + $229 + $360 = $990
$990 / $14,625 = .068 or 6.8%

3. Round that result up to the nearest 1/8th of one percent:

In our example, 6.8% is rounded up to 6.875%

Note: This is how every lender must calculate your federal consolidation loan interest rate.

Consolidation Loan Fees
There are no fees for a Federal loan consolidation.

• $10,000 - $19,999 (15 years)
• $20,000 - $39,999 (20 years)
• $40,000 - $59,999 (25 years)
• $60,000 or more (30 years)

So even if you take the longest possible term, with the lowest possible monthly payment, you can always pay more in any given month. (By paying more, you pay the loan off sooner, which results in you paying less interest over the life of the loan.)