A Federal Consolidation Loan combines multiple federal student loans into one new loan with a single student loan payment. The new loan will have a new interest rate, new terms and conditions. This loan is not to be confused with private consolidation loans which may consolidate other types of debt (credit cards, private loans, etc.,) as well as student loans, yet do not have the same benefits as a Federal Consolidation Loan.
Consolidation may be beneficial to some borrowers, but it may pose drawbacks for others. For example, Perkins Loan borrowers lose valuable interest subsidy and cancellation rights by consolidating. Also, consolidation is usually limited to larger loan amounts and may extend the loan repayment period. Extending the repayment period may increase your total finance charge, even though you may have a lower monthly payment. Be aware of all loan terms and conditions before consolidating your educational loans. Consolidation should only be considered after a thorough investigation of its benefits and drawbacks.
For further information on Federal Loan Consolidation, try visiting:
Special Direct Consolidation Loans offered for a limited time
The Department of Education will offer, through the William D. Ford Federal Direct Loan Program, the opportunity to take out a Special Direct Consolidation Loan. This short-term special consolidation opportunity will be available to eligible borrowers from January 17 – June 30, 2012. To be eligible, a borrower must meet both of the following criteria (as well as additional requirements):
- at least one Direct Loan or Department of Education-held (ED-held) Federal Family Education Loan (FFEL)
- at least one commercially-held FFEL loan
To be more specific, the borrower must have at least one Direct Loan or ED-held FFEL loan that is current or less than 270 days delinquent. Commercially-held FFEL loans must be in grace, repayment, deferment, or forbearance. (Loans that are in an in-school status are not eligible for consolidation.) Commercially-held FFEL loans cannot be in default.
Please note that one of the four federal loan servicers will contact eligible borrowers and provide access to an online application. The servicers are:
- FedLoan Servicing (PHEAA)
- Great Lakes Educational Loan Services, Inc.
For the most part, communication with eligible borrowers will occur over a several week period beginning January 17, 2012 via U.S. postal mail and/or e-mail using borrower address/contact information on file with the servicers. The servicer will provide the borrower with the web address to access the online application. Please note the online application process for Special Direct Consolidation Loans is unique to this short-term opportunity; it is not the same as the application process for traditional Direct Consolidation Loans. For this reason, it is critical that potentially eligible borrowers wait to receive correspondence from one of the four federal loan servicers identified above before attempting to apply for a Special Direct Consolidation Loan.
More detailed information is available on the Student Aid on the Web government site at http://studentaid.ed.gov/PORTALSWebApp/students/english/specialconsolidation.jsp via their Special Direct Consolidation Loans page or call 1-800-4-FED-AID (1-800-433-3243).
Time to Consolidate?
As of July 1, 2011 thru June 30, 2012 the variable rate on all unconsolidated Stafford Loans originated before July 1, 2006 is 2.36%. You can lock in rates by consolidating variable-rate loans. When consolidating multiple loans, the new fixed rate will be a weighted average of the rates of the consolidated loans, rounded to the nearest eighth of a percentage point. Please note that borrowers who may qualify for Public Service Loan Forgiveness should consolidate into the federal government’s Direct Consolidation Loan Program in order to retain certain loan benefits. (Click on the provided links for details.)
TELL ME ABOUT...
Introduction to Repayment
Knowing ‘the basics’ before making that first payment
Understanding the many choices offered
Deferments / Forbearance / Cancellations
Making use of benefits
Determining the advantages and disadvantages