Repay Student Loans

It is possible to consolidate Perkins Loans into a Direct Consolidation Loan if borrowers include at least one Direct Loan or Federal Family Education Loan (FFEL) in their request. Perkins Loans cannot be included in a Direct Consolidation Loan by themselves. Furthermore, all Perkins Loans consolidated into the Direct Loan Program will be included in the unsubsidized portion of the Direct Consolidation Loan.

Borrowers should carefully weigh the advantages and disadvantages of including a Perkins Loan in a consolidation loan. While the borrowers gain the benefits of the Direct Consolidation Loan Program, they also lose the benefits associated with the Perkins Loan Program.

We recommend that you consider the following points prior to making a decision:

Perkins Loans are eligible for additional cancellation benefits, such as performing certain kinds of public service. This benefit is lost when a Perkins Loan is included in a Direct Consolidation Loan.
Perkins Loans have a grace period of 6-9 months. When a Perkins loan is consolidated, any remaining grace period is lost.

Interest does not accrue when a Perkins Loan is placed in deferment. Since a Perkins Loan is included in the unsubsidized portion of a Direct Consolidation Loan, borrowers are responsible for interest that accrues throughout the deferment period.

Perkins Loans generally have a lower interest rate but have a less flexible repayment period of 10 years.

The Direct Consolidation Loan Program offers standard, graduated, extended and income contingent repayment plans which may lower monthly payments.

NOTE: Lower payments and extended repayment terms can increase the overall finance charges incurred over the life of loan.

Source: U.S. Department of Education

Consolidation loans allow you to combine different types of federal student loans to simplify repayment. Even if you have just one loan, you can also choose to consolidate it. Both the FFEL and Direct Loan Programs offer consolidation loans. There are several advantages to consolidate or rehabilitate your loan as described in the categories below.

FFEL Consolidation Loans

A FFEL Consolidation Loan is designed to help student and parent borrowers consolidate several types of federal student loans with various repayment schedules into one loan. With a FFEL Consolidation Loan, you will make only one payment a month. Under this program, your consolidation loan will be made by a commercial lender, credit bureaus will be notified that your account has a zero balance, and you will sign a new promissory note that will establish a new interest rate and repayment schedule. To receive a FFEL Consolidation Loan, you must be in repayment on your defaulted loan (that is, three voluntary, on-time, full monthly payments). Depending on the balance due, the repayment period may extend up to 30 years. If you owe no other delinquent or defaulted debts to the United States, you will again be eligible for other federal funds, including FHA loans, VA loans, and Title IV student financial aid funds.

Source: U.S. Department of Education

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.

Source: U.S. Department of Education

Yes, borrowers without any Direct Loans may be eligible for a Direct Consolidation Loan if they include at least one FFEL Loan and have been unable to obtain a Federal Consolidation Loan with a FFEL consolidation lender or have been unable to obtain a Federal Consolidation Loan with income-sensitive repayment terms acceptable to them or intend to apply for loan forgiveness under the Public Service Loan Forgiveness Program.

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.

Eligibility Requirements:

To qualify for a Direct Consolidation Loan, borrowers must have at least one Direct Loan or Federal Family Education Loan (FFEL) that is in grace, repayment, deferment or default status. Loans that are in an in-school status cannot be included in a Direct Consolidation Loan.

Borrowers can consolidate most defaulted education loans, if they make satisfactory repayment arrangements with the current loan holders or agree to repay their new Direct Consolidation Loan under the Income Contingent Repayment Plan.

Borrowers who do not have Direct Loans may be eligible for a Direct Consolidation Loan if they include at least one FFEL Loan and have been unable to obtain a Federal Consolidation Loan with a FFEL consolidation lender or have been unable to obtain a Federal Consolidation Loan with income-sensitive repayment terms acceptable to them or intend to apply for loan forgiveness under the Public Service Loan Forgiveness Program.

Borrowers who have only a Direct Consolidation Loan cannot consolidate again unless they include an additional loan.

Source: U.S. Department of Education

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.

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.

For the new interest rates in effect from July 1, 2008 through June 30, 2009 for variable rate Direct Subsidized Consolidation Loans, Direct Unsubsidized Consolidation Loans, Direct PLUS Consolidation Loans, Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans click here.

Source: U.S. Department of Education

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.

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.

Source: Department of Education

To qualify for Direct Consolidation Loans, borrowers must have at least one Direct Loan or Federal Family Education Loan (FFEL) that is in grace, repayment, deferment, or default status. Loans that are in an in-school status cannot be included in a Direct Consolidation Loan.

Borrowers can consolidate most defaulted education loans, if they make satisfactory repayment arrangements with their current loan holder(s) or agree to repay their new Direct Consolidation Loan under the Income Contingent Repayment Plan.

Borrowers who do not have Direct Loans may be eligible for a Direct Consolidation Loan if they include at least one FFEL Loan and have been unable to obtain a Federal Consolidation Loan with a FFEL consolidation lender or have been unable to obtain a Federal Consolidation Loan with income-sensitive repayment terms acceptable to them or intend to apply for loan forgiveness under the Public Service Loan Forgiveness Program..

Borrowers who have only a Direct Consolidation Loan cannot consolidate again unless they include an additional loan.

Source: U.S. Department of Education

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.

Source: U.S. Department of Education

Student loan consolidation is combining several loans into one with a new repayment term and interest rate. This is generally offered in connection with federal loans. Here’s how to help identify potential problems related to loan consolidation:

Avoid lenders and marketers who use high-pressure sales tactics. Some marketers pitch that “your interest rates may go up if you do not consolidate immediately!” Whether and when interest rates for consolidating your loans will change depends on what type of loans you have. Look at your loan documents to determine whether the interest rates are fixed or variable:

If all of your education loans have fixed interest rates, there may be no deadline to consolidate.
If some or all of your loans have variable interest rates, when you consolidate into a fixed loan it may affect the interest rate of your loan. ED publishes new variable rates for some federal loans each July 1st. The annual rate changes can raise or lower the interest rate offered on a consolidated loan because the consolidation interest rate will be the weighted average of all loans consolidated.

Whether or not you have a targeted timeframe, take your time to determine whether consolidating is right for you.

Some lenders impose restrictions on promised discounts. Some may disclose these limits only in the fine print. Read the fine print in your loan documents to find these types of conditions:
Some lenders lower the interest rate on your consolidated loan, but only if you opt for automated payments from your checking account.

Other lenders discount the interest rate on your consolidated loan, but only if your loan has at least a specified minimum loan balance.

Still others agree to lower the interest rate on your consolidated loan, but only if you remain current on your payments for the life of the loan. You may want to consider loans with more immediate discounts, a shorter on-time payment period for interest rate discounts, or an additional discount for signing up for automatic payments.

Some lenders sell consolidated loans to other companies. Because benefits of consolidated loans — like promised discounts — may not transfer, you may lose benefits if the lender sells your loan. Ask the lender whether the terms of your loan will change if it is sold.

Be cautious about consolidating federal loans and private loans into one private loan. The result of consolidating all loans into one non-federal private loan means that you lose all the benefits and protections provided in the federal loan programs.

Consolidating a Perkins loan may not be in your best interest. You may lose unique deferment and cancellation rights available to Perkins loan borrowers. For more information about these rights go to http://www.ed.gov/off ices/OSFAP/DCS/perkins.deferment.cancellation.html.
Frequent consolidation after borrowing may impact timelines you need to meet to qualify for these benefits.