Consolidation Loans

Taken from The Student Guide of the U.S. Department of Education

A Consolidation Loan is designed to help student and parent borrowers simplify loan repayment by allowing the borrower to consolidate several types of federal student loans with various repayment schedules into one loan. You can even consolidate just one loan into a Direct Consolidation Loan to get benefits such as flexible repayment options. If you have more than one loan, a Consolidation Loan simplifies the repayment process because you make only one payment a month. Also, the interest rate on the Consolidation Loan may be lower than what you’re currently paying on one or more of your loans. If you’re in default* on a federal education loan, you may receive a Consolidation Loan if certain conditions are met.

Both the Direct Loan Program and the FFEL Program offer consolidation loans. Direct Consolidation Loans are available from the U.S. Department of Education. FFEL Consolidation Loans are available from participating lenders such as banks, credit unions, and savings and loan associations.

Direct Consolidation Loans

Who is eligible for a Direct Consolidation Loan?
You can get a Direct Consolidation Loan during your grace period, once you have entered repayment, or during periods of deferment or forbearance. You must consolidate at least one Direct Loan or FFEL Loan. If you don’t have a Direct Loan, but you have a FFEL Loan, you must first contact a FFEL lender who makes FFEL Consolidation Loans to ask about obtaining a FFEL Consolidation Loan. If you are eligible for the Direct Loan Income Contingent Repayment Plan and you are unable to obtain a FFEL Consolidation Loan or one with income-sensitive repayment terms that are acceptable to you, you are eligible to apply for a Direct Consolidation Loan.

If you are still in school, you may apply for a Direct Consolidation Loan for any Direct Loans or FFEL Loans if you are attending at least half time* and have at least one Direct Loan or FFEL Direct Consolidation Loans Program loan in an in-school period. (Generally, your loan is in an in-school period if you have been continuously enrolled at least half time* since the loan was disbursed.) In addition, if the school you are attending is not a Direct Loan school, at least one of the loans that you consolidate must be a Direct Loan. If you’re in default* on a federal education loan, you may be able to receive a Direct Consolidation Loan. For more information, contact the Loan Origination Center’s Consolidation Department at the number listed below.

Loan Origination Center’s Consolidation Department

1-800-557-7392 (This is a toll-free number.)

If you are hearing impaired, you may call the TDD number at

1-800-557-7395

What kinds of loans can be consolidated under a Direct Consolidation Loan?
Most federal student loans and PLUS Loans can be consolidated. All the loans discussed in the Guide are eligible for consolidation. The Loan Origination Center’s Consolidation Department can give you a complete listing of eligible loans. Loans that are consolidated into a Direct Consolidation Loan fall into one of three categories:

  • Direct Subsidized Consolidation Loans
  • Direct Unsubsidized Consolidation Loans
  • Direct PLUS Consolidation Loans

If you have loans from more than one category, you still have only one Direct Consolidation Loan and make only one monthly payment. However, interest rates differ depending on the loan category, as do repayment and deferment options for the borrower.

What is the interest rate on a Direct Consolidation Loan?
For Direct Subsidized and Unsubsidized Consolidation Loans, the interest rate is variable but cannot exceed 8.25 percent. For Direct PLUS Consolidation Loans, the interest rate is also variable and may not exceed 9 percent. These interest rates are adjusted each year on July 1.

How do I pay back my Direct Consolidation Loan?
Generally, all the Direct Loan repayment plans are available to borrowers of Direct Consolidation Loans. However, some restrictions may apply. For example, Direct PLUS Consolidation Loans are not eligible to be repaid under the Income Contingent Repayment Plan.

How can I get a Direct Consolidation Loan?
You’ll be given more information about consolidation loans during entrance and exit counseling sessions at your school. You may also contact the Loan Origination Center’s Consolidation Department at the number listed on page 20.

FFEL Consolidation Loans

Who is eligible for a FFEL Consolidation Loan?
You can get a FFEL Consolidation Loan during your grace period or once you have entered repayment. If you’re in default* on a federal education loan, you may be able to receive a FFEL Consolidation Loan. For more information, contact a lender that participates in the FFEL Consolidation Loan Program.

What kinds of loans can be consolidated under a FFEL Consolidation Loan?
Most federal student loans and FFEL PLUS Loans can be consolidated. Most of the loans discussed in the Guide are eligible for consolidation; Direct Loans can now be consolidated under a FFEL Consolidation Loan. A participating lender can give you a complete listing of eligible loans.

There are two types of FFEL Consolidation Loans:

  • Subsidized FFEL Consolidation Loans
  • Unsubsidized FFEL Consolidation Loans

If all of the loans you consolidate are subsidized, you’ll receive a Subsidized FFEL Consolidation Loan. If any loan you consolidate is unsubsidized, you’ll receive an Unsubsidized FFEL Consolidation Loan for all loans, including those that were subsidized.

What's the interest rate on a FFEL Consolidation Loan?
The interest rate for your FFEL Consolidation Loan will be the weighted average of the original interest rates of the loans being consolidated. The rate is rounded up to the nearest whole percent.

How do I pay back my FFEL Consolidation Loan?
All the FFEL repayment plans are available to borrowers of FFEL Consolidation Loans.

How can I get a FFEL Consolidation Loan?
You’ll be given more information about consolidation loans during entrance and exit counseling sessions at your school. You may also contact the customer service department for your lender to ask if they participate in Federal Consolidation Program and to request an application or more information.





      

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The information presented on the NYSFAAA Website is provided as a service from the New York State Financial Aid Administrators Association to our constituents and represents our best efforts to assist students and their families in pursuing funding for higher education. NYSFAAA is a volunteer association of financial aid professionals representing the various institutions of higher education in New York State. We have collected information we believe to be important and reputable in finding and obtaining financial aid resources; however, we assume no liability for the use of this information. The New York State Financial Aid Administrator's Association, Inc (NYSFAAA) does not receive any money, gifts or compensation, related to educational lending activities, from any "lending institution" as defined in S620(8)a and S620(8)b of New York State Education Law. Hence, NYSFAAA does not meet the definition of "lending institution" as defined in S620(8)c of New York State Education Law. Therefore, institutions of higher education in New York and employees of those institutions are not subject to any potential conflicts of interest or legal restrictions under NYS Education Law in their interactions with NYSFAAA.*
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