Is consolidation for me?

A consolidation loan may help make payments more manageable by combining several federal student loans into one loan with one monthly payment. You would need to apply for loan consolidation and choose a standard, an extended, a graduated, an income-contingent (for Direct Consolidation Loans), an income-sensitive (for FFEL Consolidation Loans), or an income-based repayment plan. Depending on the amount of the debt, standard and graduated repayment plans have 10- to 30-year repayment periods.

The interest rate for both Direct and FFEL Consolidation Loans is a fixed rate for the life of the loan. The fixed rate is based on the weighted average of the interest rates on all of the loans they consolidate, rounded up to the nearest one-eighth of 1 percent. However, the interest rate will never exceed 8.25 percent.

How can consolidation help you manage your debt?

Loan consolidation can offer benefits to help manage education debt. You can:

  • Make lower monthly payments by increasing the repayment period (However, this will increase the total amount you repay over the life of the loan).
  • Make a single monthly loan payment on one bill to one lender.

As with other loan types, you may prepay a consolidation loan without penalty and may change repayment plans if you find that the current plan no longer meets your needs.

Is there a downside to consolidation?

Although consolidation can help many students manage their monthly payments, there are some cases when consolidation may not be right for you.

  • You may lose certain benefits (such as cancellation benefits, interest subsidies, etc.) that were offered on the original loans. Borrower benefit programs may vary among different consolidation lenders.
  • If you are close to paying off the student loans, it may not make sense to consolidate. By extending the years of repayment for the loans, you may be increasing the total amount you will have to pay in interest.
Pros Cons
Lower monthly payments
Consolidation may reduce the monthly payments by as much as 50% or more.
Longer repayment schedule
Consolidation may extend how long you have to pay off student loans, sometimes up to 30 years.
Fixed interest rate
Your monthly payment is always the same.
More interest to pay
You may pay more interest since you'll be making payments for a longer period of time. Plus, the new interest rate is higher than the average interest rate for the multiple loans.
One bill, one payment
Managing one loan with one monthly payment is more convenient than managing multiple loans.
Loss of loan incentives
When you combine multiple loans into one, you may lose any incentive programs on the original individual loans.

Do your homework. If you can manage a smaller payment or if you're experiencing a financial hardship, you may want to consider changing your repayment plan before considering consolidation.

Helpful Tips

  • Not all loans qualify for loan consolidation, so check to see if this is an option.
  • Once you consolidate, you can re-consolidate only if you have an eligible student loan that was not included in the original consolidation.

What is needed to complete the consolidation application?

Information about the Current Loan(s) Before beginning the online combined application and promissory note, you will need to gather all of the loan records, account statements, and bills so that you have on hand all the information needed to complete the application and promissory note, and related forms. To find the information you need to answer questions concerning the loan you want to consolidate, you can use the following resources:

  • your last monthly billing statement(s)
  • your quarterly interest statement(s) or annual statement(s)
  • your coupon book(s)
  • the Internet site of the loan holder(s) or servicer(s)
  • the school's financial aid office, if you are currently in school
  • Important Note: In the Loan Information (Education Loan Indebtedness) sections of the Consolidation application, you will be asked about the education loans. Ensure that you list all your education loans, indicating those you want to consolidate (including Direct Loans) and those you do not want to consolidate. Education loans that are not included in the consolidation may be considered in determining a borrower's maximum repayment period under the Standard and Graduated Repayment Plans.

Federal Student Aid ID

If you do not already have one, apply for an FSA ID from the U.S. Department of Education Federal Student Aid Web site. The FSA ID will be required to e-sign and submit the application online, which is the most efficient method for submission.

Consolidation Information

Before you complete the online combined application and promissory note and select a repayment plan, you can estimate what your monthly payments would be under each of the four available repayment plans using the online calculator on the U.S. Department of Education's Loan Consolidation Web page. After you have read the overview of repayment plan options, be sure to also read through the Consolidation Package (including cover letter, forms, instructions) once you are ready to complete the online combined application and promissory note.