Office of Student Financial Assistance

Consolidation: What is it?

Consolidation combines multiple federal student loans into a single loan with one monthly payment; this payment can be significantly lower than the payment required otherwise. A Consolidation Loan pays off the existing federal student loans; the borrower then repays the Consolidation Loan. Most federal student loans are eligible for consolidation, including subsidized and unsubsidized Federal Direct and Federal Stafford Loans, Federal Graduate PLUS loans, Federal Perkins Loans, and Health Professions Student Loans. Parents can also consolidate their Federal Parent PLUS loans.

Consolidation Loans are available through the FFEL (Federal Family Education Loan) program and the Federal Direct Loan Program. Both allow the borrower to combine different types and amounts of federal student loans to simplify repayment.

What are the advantages of student loan consolidation?

When can loans be consolidated?

Borrowers with one or more Federal Direct Loan or Federal Stafford Loan, and borrowers with a combination of Federal Direct Loans and Federal Stafford Loans, have the option to consolidate under either program. All Federal Stafford Loan and Direct Stafford Loan borrowers are eligible for consolidation after they graduate, leave school, or drop below half-time enrollment. You may also consolidate your loans during periods of deferment or forbearance. Federal PLUS loans are also eligible for consolidation once they are fully disbursed.

What's the interest rate on a Consolidation Loan?

Currently, both Federal Stafford Loans and Federal Direct Consolidation Loans have the same interest rate, which is a fixed rate set according to a formula established by law. The interest rate is the weighted average of the current rates charged on the loans being consolidated, rounded up to the nearest one-eighth of a percent. The interest rate will not exceed 8.25%. Currently, the rate is fixed for the life of the Consolidation Loan.

What is the repayment period for a Consolidation Loan?

The repayment period may be from 10 to 30 years, depending on the amount of debt you consolidate and the repayment plan you choose. You may also repay your Consolidation Loan in a shorter period than the maximum allowed without any pre-payment penalty.

With a Direct Consolidation Loan, if you consolidate while in your grace period, you will begin payment of the Consolidation Loan within 60 days. Thus, borrowers who apply too early in their grace period will forfeit the rest of that grace period.

With FFEL Consolidation Loans, if you consolidate during your grace period, you may also give up whatever portion of your grace period remains, and repayment begins within 60 days of the disbursement of the Consolidation Loan.

If you consolidate your Federal Perkins Loan or your Health Professions Loan, you will give up whatever special borrower benefits accompany those programs (such as a longer grace period).

Are there disadvantages to student loan consolidation?

There could be. Although consolidation can simplify repayment and may lower your monthly payment, you should carefully consider if you want to consolidate all your loans. For example, you may lose some discharge (cancellation) benefits if you consolidate a Federal Perkins Loan in a Consolidation Loan. Also, since you may have a longer period of time to repay your consolidation loan, you will pay more interest over time.

Remember, once made, consolidation loans can't be unmade because the loans that were consolidated have been paid off and no longer exist. So, make sure to research your consolidation options before you apply.