In recent years, the issue of student loan debt has grown in scope from obscure to national. Student loan forgiveness and consolidation have likewise taken on a larger profile, particularly consolidation.
Student loan consolidation is the process of taking multiple outstanding loans and reorganizing them into a single loan with one monthly payment. Consolidation loans like the Stafford Loans, for example, can help make this possible with Direct and Federal Family Education Loan (FFEL) consolidation programs.
Consolidating offers several benefits, including:
- You have just one check to write each month and just one repayment plan to track.
- When interest rates are low, consolidating loans can save a great deal of money.
- You can extend your repayment timetable from 10 years up to 30 years, depending on the size of your debt, to shrink your monthly payments. A consolidation loan may lower your monthly loan payments by as much as 40 percent.
For college grads overwhelmed by multiple student loans, consolidation can be extremely helpful. If you’re in serious debt and ineligible for student loan forgiveness, consolidation could offer the solution you need.
Get answers to student loan consolidation questions
If you’re not familiar with loan consolidation, you may have trouble finding the information you need all in one place. No agency or organization has a centralized Department of Student Loan Consolidation and Forgiveness, after all.
The good new is, you’ve found Bankrate’s FAQs about student loan consolidation. Here’s where you can learn about topics including consolidation of private vs. federal (or national) student loans, forgiveness programs and how they differ from consolidation, how to apply for a consolidation loan and many others.
Despite the appeal — and its popularity — student loan consolidation isn’t for everyone. Here are some frequently asked questions and answers that may help determine if it’s the right move for you.
Should I consolidate my student loans?
If you need more cash in your pocket right now, consolidation can help by extending the life of your loan and thus trimming your monthly payments — although the length of your repayment terms will depend on the amount of debt you have, and you may not be able to extend at all. But if interest rates are low you can lock in long-term savings, since less of your money will go to interest.
You may also have access to a new repayment schedule (like an income-contingent plan) that’s a little easier on your wallet. If you don’t care about the extra cash and just want a consolidation for the simplicity of a single monthly payment, you can use any money you save to pay down the principal. (There are no prepayment penalties for student consolidation loans.)
When is the right time to consolidate loans?
If you’re just finishing college, you’ll want to consolidate your loans after you graduate but before your grace period ends, so that you can take advantage of the lower in-school interest rate.
Timing is everything. You’ll need to complete all the paperwork and have it processed and approved before repayment begins. The downside is that your grace period will end once your consolidation loan goes through. If you’ve already been paying off your loans for a while, you can consolidate at any time.
When is consolidation a bad idea?
If you have only a couple more years or a few thousand more dollars to go till you pay off your student loans, consolidation is probably more hassle than it’s worth.
Switching to a new lending institution might eliminate any benefits you’ve earned, like lower interest rates for on-time payments over the years. Plus, consolidating could make it impossible for you to have a Perkins Loan forgiven or reduced. If you can handle your monthly loan payment as is, carefully investigate how consolidating will change the total amount you’re expected to repay.
What types of loans can be consolidated?
The following types of loans are eligible for consolidation:
- Subsidized Federal Stafford Loans
- Unsubsidized Federal Stafford Loans
- PLUS loans from the Federal Family Education Loan (FFEL) Program
- Supplemental Loans for Students
- Federal Perkins Loans
- Nursing Student Loans
- Nurse Faculty Loans
- Health Education Assistance Loans
- Health Professions Student Loans
- Loans for Disadvantaged Students
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- Direct PLUS Loans
Who can consolidate my loans?
You can get a consolidation loan from any private lending institution with government approval, or from the Department of Education itself.
What kind of terms do the lenders offer?
The key terms for federal consolidation loans do not vary by lender. No application or origination fees are allowed and there are no prepayment penalties. Federal law sets the period of time for paying back the loans and sets a ceiling on the interest rate.
Private consolidation lenders, on the other hand, are not subject to those terms and may include variable rates and any number of fees. What’s more, some benefits of a federal consolidation loan, such as interest subsidies on deferred loans, are not available on private loans.
Bear in mind that not all consolidators are created equal. Some offer favorable terms like interest-rate reduction for making on-time payments or choosing automatic withdrawal. Others may offer repayment plans that better suit your financial situation.
Can you combine federal and private loans?
Public and private loans can’t be combined, but if you have multiple private loans, you can consolidate those, too. Contact your lending institutions to find out how.
How can I get the best interest rate?
Interest rates are determined by the federal government and change each year on July 1, so check with a lender to get their take on possible rate fluctuation.
Use the Bankrate Student Loan Calculator to simulate interest payments and payoff dates on a consolidated student loan.
How do I apply for a consolidation loan?
Most lending institutions, including the federal government, offer both online and paper applications. The federal government doesn’t have an all-in-one department of student loan consolidation and forgiveness, but StudentLoans.gov offers a good starting place.
Besides basic personal contact information, you’ll need to be able to provide information including:
- The type of loan you want, the balance, the current loan holder
- Employer’s name and contact information
- Educational institution
Review all paperwork carefully before signing and submitting. Once approved, you’ll receive notification and a new repayment schedule.
What information will I need to supply?
You’ll need a verified Federal Student Aid (FSA) ID as well as personal information and financial information, including:
- Permanent address
- E-mail address
- Phone number
- Documentation of income
How is loan consolidation different from loan forgiveness?
Unlike student loan forgiveness, consolidation involves working with a lender that will pay off your existing balances. The lender will replace those loans with a new, consolidated loan and a new monthly payment.
Likewise, loan consolidation differs from public service loan forgiveness. Consolidation involves changing the way you repay student loans rather than relieving you of the obligation to repay all the money you’ve borrowed. Students who have entered careers in the military or other forms of public service, such as education, may be eligible to have their loans partially forgiven.
Bankrate’s student loans resources section has more details on forgiveness vs. consolidation.
How is loan consolidation different from refinancing?
The difference between student loan consolidation and refinancing is a subtle distinction but no less important. Both methods involve taking out a new loan to better manage multiple, outstanding balances.
However, refinancing allows the borrower to seek better interest rates and repayment terms. These, in turn, can yield more possibilities as far as reducing your monthly payments and total amount of student debt. A good credit history is also ideal if you are planning to refinance.
Can I consolidate more than once?
Current law dictates that you can consolidate only once, so if you consolidate at a 6 percent interest rate and rates later drop to 3 percent, you’re out of luck. There are two exceptions:
- If you’ve since gone back to school and acquired new student loans
- If an outstanding loan was excluded from your original consolidation.
In those cases, you may be able to have another go at it.
Can I bundle my student loans with my spouse’s?
Yes, a married couple can jointly consolidate their loans, but it may not be a good idea. To do so, you’ll both have to agree to assume full responsibility for payment of the debt. So if your marriage ends in divorce, your loans will still be living together and one ex-spouse will be held responsible if the other refuses to pay up.
You also won’t be able to get an in-school loan deferment, because both of you would have to be enrolled to qualify.
Will I lose the interest subsidy on my subsidized loans?
No. Although your existing loans will be packaged as one larger loan, your subsidized and unsubsidized loans are grouped so that you won’t be held responsible for extra interest on subsidized loans.
STUDY YOUR STUDENT LOAN OPTIONS: Learn more about student loan forgiveness, consolidation and other college financing topics with Bankrate’s student loans resources center.
Refinance your student loan for a better rate and a faster payoff date.