Borrowers Currently Enrolled in school can no longer Consolidate Their Loans
The Higher Education Reconciliation Act of 2005 eliminated the provision that allowed a FFEL or Direct Loan borrower who is enrolled in school on at least a half-time basis to request to enter repayment early on his or her Stafford Loans if the lender approves. Repayment is now defined as not beginning until 6 months and one day after the date the student ceases to carry at least one-half the normal full- time academic workload, as determined by the school. Therefore, a FFEL or Direct Loan borrower who is still enrolled in school at least half-time may no longer request to enter repayment early to apply for a FFEL or Direct Consolidation Loan.
To apply for a Direct Loan Consolidation or an FFEL Consolidation the borrower must contact the lender and complete an application. Most lenders provide borrowers with the ability to apply on-line or request an application over the telephone. Once an application is completed and submitted, the lender will request information from the borrower’s other lenders or from its own system to determine the amounts outstanding on the borrowers loans. The borrower will then receive notification about the consolidation loan, normal consumer disclosures, the amount owed, and if appropriate, where to make payments.
FFEL Consolidation Loan Weighted Average Interest Rate
Consolidation loans have fixed interest rates that are based on the weighted average of the interest rates on the loans being consolidated. A lender can provide a new consolidation loan borrower with the lowest statutory weighted average interest rate for loans by using the lower of the weighted average of the interest rates on the loans being consolidated as of July 1 or the date the lender received the borrower's consolidation loan application. The lender should apply a consistent method of determining when an application is received.
Most federal education loans are eligible for consolidation, including subsidized and unsubsidized Direct and FFEL Stafford Loans, SLS, Federal Perkins Loans, Federal Nursing Loans, and Health Education Assistance Loans. PLUS Loan borrowers (parent and graduate/professional degree students) can also consolidate their loans. Private education loans are not eligible for consolidation.
To obtain a complete list of the federal student loans that can be consolidated
- contact the Direct Loan Origination Center's Consolidation Department if you’re applying for a Direct Consolidation Loan. You can reach them by calling 1-800-557-7392. TTY users may call 1-800-557-7395. Or visit loanconsolidation.ed.gov.
- contact a participating FFEL lender if you’re applying for a FFEL Consolidation Loan. If you do not know who your FFEL lender is, please call 1-800-433-3243 for assistance.
All FFEL and Direct Stafford Loan borrowers are eligible to consolidate after they graduate, leave school, or drop below half-time enrollment.
PLUS loans are eligible for consolidation once they are fully disbursed.
Borrowers who are delinquent or in default must meet certain requirements before they may consolidate their loans. Contact your loan holder for more information.
To be eligible for a William D. Ford Direct Consolidation Loan, you must have at least one of the following:
- A Direct Stafford subsidized or unsubsidized loan that will be included in the Consolidation loan; or
- Have at least one Federal Family Education Loan (FFEL) program Stafford subsidized or unsubsidized loan.
If your current loan holder does not offer a Consolidation Loan or a Consolidation Loan with Income Sensitive Repayment terms acceptable to you, and you are eligible for Income Contingent Repayment, you may apply for a Direct Consolidation loan. In addition, if you have more than one FFEL loan, you may apply for a Consolidation Loan with any of your FFEL loan holders or through the Direct Consolidation Loan Program.
Borrowers who obtain a Direct Consolidation Loan or a FFEL Consolidation Loan while they are in the grace period on any loan that will be included in the new Consolidation Loan, or who will include one or more Perkins Loans in the new Consolidation Loan, are advised that the grace period on those loans will be immediately terminated (e.g., you will lose the benefit of having a grace period before repayment would begin).
Note that borrowers with one or more Direct Loans, including Consolidation Loans, can also consolidate under the FFEL Consolidation Loan Program if they choose.
The interest rate for FFEL and Direct Consolidation Loans is set according to a formula established by federal statute. The fixed rate is based on the weighted average of the interest rates on the loans at the time you consolidate, rounded up to the nearest one-eighth of a percent. The interest rate does not exceed 8.25 percent. The consolidation rate is fixed for the life of the loan, which protects you from future increases in variable rate loans but prevents you from benefiting from future decreases in variable rates.
Borrowers with Stafford Loans issued on or after July 1, 1995, can reduce the consolidation rate by up to half a percentage point or more by consolidating before the end of the grace period.
If a borrower wanted to consolidate only Direct or FFEL Stafford Loans made between July 1, 1998 and June 30, 2006, the 2007-08 Consolidation Loan interest rate for loans that have entered repayment would be 7.22 percent. To consolidate those same loans during a grace or deferment period, the rate would be 6.62 percent. If a borrower consolidated PLUS Loans made between July 1, 1998 and June 30, 2006, the interest rate for the resulting PLUS Consolidation Loan would be 8.02 percent.
The interest rate you would receive, however, depends on which federal student loans are being consolidated. For example, your rate would be higher if you consolidated a 5 percent Federal Perkins Loan along with a 6.62 percent Direct or FFEL Stafford Loan
Obtaining a Consolidation Loan
For a FFEL Consolidation Loan, contact the consolidation department of a participating lender for an application or more information. (Your parents should do the same thing if they want to apply for a FFEL PLUS Consolidation Loan.)
For Direct Loans, you (and your parents, for a Direct PLUS Consolidation Loan) can contact the Direct Loan Origination Center’s Consolidation Department at the Web site given above.
Note that if your parents want to apply for a FFEL PLUS Consolidation Loan, no credit checks are required. If they want to apply for a Direct PLUS Consolidation Loan, they are subject to a check for adverse credit history.
Repayment of Consolidation Loans begins within 60 days of the disbursement of the loan. The payback term ranges from 10 to 30 years, depending on the amount of education debt being repaid and the repayment option you select. Education loans not included in the Consolidation Loan are considered in determining the maximum payback period. You may elect to repay your loans under a shorter period than the maximum allowed.
All the FFEL repayment plans are available to FFEL Consolidation Loan borrowers. For Direct Consolidation Loan borrowers, most of the Direct Loan repayment plans are available, except that Direct PLUS Consolidation Loans are not eligible to be repaid under the Income Contingent Repayment Plan and might not be eligible for some discharge/cancellation benefits. Check with the holder of your loan. You can also read more about repayment plan choices in the Repaying Your Student Loan section of Funding Education Beyond High School: The Guide to Federal Student Aid, click here to access the publication.
- Fees - Borrowers who consolidate will not pay any application fees or prepayment penalties.
- Credit checks - Under FFEL Consolidation Loans, no credit checks are required, even for PLUS borrowers. Under Direct Loan consolidation, PLUS borrowers are subject to a check for adverse credit history.
Always Consider the Cost
You should keep in mind that although consolidation can simplify loan repayment and lower your monthly payment, it also can significantly increase the total cost of repaying your loans. Consolidation offers lower monthly payments by giving borrowers up to 30 years to repay their loans. So, you'll make more payments and pay more in interest. In fact, in some situations consolidation can double your total interest expense. If you don't need monthly payment relief, you should compare the cost of repaying your unconsolidated loans against the cost of repaying a consolidation loan. You also should take into account the impact of losing any borrower benefits offered under non-consolidated repayment plans. Borrower benefits, which may include interest rate discounts, principal rebates, or some loan cancellation benefits can significantly reduce the cost of repaying your loans.
Once made, Federal Consolidation Loans cannot be unmade. That's because the loans that were consolidated have been paid off and no longer exist. Take the time to study your consolidation options before you submit your application. This checklist has been designed to help you determine whether and how you should consolidate your loans.
Posted by loanconsolidation.article
at 8:41 AM EDT
Updated: Saturday, 13 October 2007 8:42 AM EDT