Student Loan Consolidation & Student Loan Repayment
Delinquency status indicates that borrowers’ accounts have become past due on payment. This occurs when borrowers’ loan payments are not received by the due dates. Accounts remain delinquent until borrowers bring their accounts current with payments, deferments, or forbearances. If borrowers’ accounts have become delinquent and the borrowers are unable to make payments, deferments or forbearances should be considered.
Source: U.S. 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
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.
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.
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.
If you claim to have repaid a portion of the loan which is not reflected in your current balance, or to have repaid the loan in full, you should send copies of the canceled payment instruments (i.e. checks, money orders, etc.) used toward repayment of the loan and any other pertinent information to the agency servicing your loan.
Whether a bankruptcy discharge relieves an individual of his or her obligation to repay a student loan or grant overpayment is now determined by whether a court has ruled that repayment would impose an undue hardship on the borrower and his or her dependents. If the bankruptcy was filed on or after October 8, 1998, the loan or grant obligation is not affected by a bankruptcy discharge unless the debtor received an undue hardship ruling from the court.
Prior to October 1998 changes in bankruptcy law, whether a loan or grant overpayment was discharged in a bankruptcy depended on different rules, depending on when bankruptcy was filed, how long the student loan had been in repayment, and what kind of student loan the debtor had received. Generally, loans or grant obligations owed and in repayment for more than five years, and later seven years by the time the borrower filed for bankruptcy relief were dischargeable by reason of the age of the debt. Debts owed and in repayment status for shorter periods were dischargeable only if a court ruled that repayment would pose an undue hardship. In addition, a general discharge received in a Chapter 13 (wage earner plan) bankruptcy that was filed before November 5, 1990 was sufficient to discharge a student loan or grant obligation without regard to how long the debt had been owed, even if the debtor failed to prove that repayment would pose an undue hardship.
You should present documentation regarding your bankruptcy case to Department representatives, who can advise whether the Department considers bankruptcy law to relieve you of the obligation to repay this debt. You may seek advice from your bankruptcy counsel in this matter as well.
If your bankruptcy petition was dismissed rather than discharged, then none of your debts, including your loan, were discharged.
Source: U.S. Department of Education
An independent student is at least 24 years old, married, a graduate or professional student, a veteran, a member of the armed forces, an orphan, a ward of the court, or someone with legal dependents other than a spouse.
A loan for which a borrower is fully responsible for paying the interest regardless of the loan status. Interest on unsubsidized loans accrues from the date of disbursement and continues throughout the life of the loan. Unsubsidized loans include: Direct Unsubsidized Loans, Direct PLUS Loans, Direct Unsubsidized Consolidation Loans, and Federal Unsubsidized Stafford Loans, Federal PLUS Loans, and Federal Unsubsidized Consolidation Loans.
What is a Preauthorized Debit Account?
A Preauthorized Debit Account (PDA) is an account that gives your bank the authority to automatically deduct your loan repayments from your checking/savings account.
What Are the Benefits?
The benefits of PDA are: your repayments will always be made on time, you will save on postage fees, and you can choose from several repayment options that will better suit your financial budget while repaying your student aid debt.
How Do I Establish An Account?
To establish an account, you will need to complete an application, which you can request by calling our customer service center at 1-800-621-3115. NOTE: The Preauthorized Debit Program is only available for defaulted loans, non-defaulted Perkins Loans, and grant overpayments held by the U.S. Department of Education that are payable to the National Payment Center in Greenville, TX. Please check your billing statements: if you send your payments to any other address you need to contact your loan-holder to see if the Preauthorized Debit is available.
What Amount Will be Debited from My Account?
You may indicate to us whether your repayment plan is weekly, semi -monthly or monthly. The amount deducted must equal or be greater than the amount designated on your original repayment agreement.
What if I want to Cancel my PDA Service?
To cancel your PDA service, just call ED’s Servicing Center at 1-800-621-3115. After cancellation, it may take seven (7) days to discontinue the electronic debiting service and there may be one more automatic payment deduction from your checking or savings account.