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

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.

Source: 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

A repayment plan that bases your monthly payment on your yearly income, family size, and loan amount. As your income rises or falls, so do your payments. After 25 years, any remaining balance on the loan will be forgiven, but you may have to pay taxes on the amount forgiven.

Each year your monthly payment will be based on your family size, annual Adjusted Gross Income (AGI) as reported on your federal tax return, and the total amount of your Direct Loan(s). To participate in the ICR Plan you must authorize the U.S. Internal Revenue Service (IRS) to inform the U.S. Department of Education (Department) of the amount of your income. This information will be used to calculate your repayment amount, which will be adjusted annually to reflect changes in your AGI If you select the ICR Plan, you will be billed for only the interest amount that accrues on your loan each month until you complete and return the required documentation.

Source: U.S. Department of Education

Loan programs authorized by the Public Health Services Act and administered by the U.S. Department of Health and Human Services (HHS) rather than the U.S. Department of Education. Although health professions loans can be included in consolidation loans, borrowers should be aware of the advantages and disadvantages of consolidating these loan types because of the differences between the programs.

HHS loans include:

• Health Professions Student Loans (HPSL)
• Loans for Disadvantaged Students (LDS)
• Health Education Assistance Loans (HEAL)
• Nursing Student Loans (NSL)

Source: U.S. Department of Education