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Frequently Asked Questions about Student Loan Consolidation

Timing issues

I am about to graduate and have been receiving notices from lenders saying that I should consolidate my Stafford loan debt. Do I have to decide right now?
You should not feel pressured to consolidate. Generally, consolidation is a one-shot deal, and this is a big decision that you should consider seriously. If you decide to consolidate, the timing of your application may impact the interest rate you receive on your Consolidation loan. You should keep in mind that it is best to consolidate at a time and in a way that will be most advantageous for you, particularly with regard to the interest rates of the loans that you want to consolidate. The interest rate on a Consolidation loan is the weighted average of the interest rates (as of the date the application is received by the lender) on all of the loans you are consolidating, rounded up to the nearest one-eighth of a percent. (For a sample Consolidation loan interest rate calculation, see "An overview of the Federal Consolidation Loan Program.") Here are a few things to consider.

  • If you took out an unsubsidized Stafford or PLUS loan on or after July 1, 2006, it carries a fixed interest rate of 6.8% or 8.5%, respectively.
  • However, if you took out a Stafford or PLUS loan before July 1, 2006, it carries a variable interest rate that is adjusted annually on July 1 (and remains in effect through the following June 30). The new interest rates for variable-rate Stafford and PLUS loans are announced each year in late May, which gives you a chance to see if the rates will increase or decrease.

Note: Stafford loans that have variable interest rates actually have two levels of rates. The interest rate is lower when you are in school, in your grace period (the six months after you leave school before you have to start paying back your loans), and in periods of deferment. The interest rate is higher when you are in repayment. So, if you consolidate a variable-rate Stafford loan while you are in your grace period or while you are in a period of deferment, the interest rate on that loan can be up to 0.6% lower, which will have a positive effect on the calculation of your Consolidation loan interest rate.

I am a student currently enrolled in school on at least a half-time basis. Can I consolidate my Stafford loan debt now?
No. Effective July 1, 2006, a borrower may no longer request to enter repayment on his or her Stafford loan(s) while still enrolled in school in order for the borrower to consolidate those loans. You will have to wait until you are in your grace period or in repayment on your Stafford loans in order to consolidate.

If I choose to consolidate while in my grace period, can I use the remainder of my grace period to postpone repayment for my Consolidation loan?
No. If you consolidate during your grace period, you forfeit the remainder of your grace period.

Is there any benefit to consolidating during my grace period?
It depends. You may want to consider consolidating your loans while you are in your grace period since the interest rate on any variable-rate Stafford loans disbursed before July 1, 2006, is 0.6% lower than the rate you will have once you begin repayment on your loans. Therefore, if you consolidate your loans while you are in your grace period, you will have a lower Consolidation loan interest rate. Check with your lender at least six weeks before the end of your grace period to discuss this option.

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Deferment issues

If I obtain a Consolidation loan and then go back to school on at least a half-time basis, will I be required to make payments on my Consolidation loan while in school?
No. If your lender receives information from your school that you are enrolled once again on at least a half-time basis, or receives your request for an in-school deferment, your lender will put your Consolidation loan into an in-school deferment status. You will not be required to make payments on your Consolidation loan until you drop to less-than-half-time enrollment or graduate. Of course, you can always make loan payments while you are in school. Every payment made can potentially reduce the amount of interest that accrues on your Consolidation loan.

Keep in mind that you will not receive a grace period on your Consolidation loan and you will enter repayment within 60 days after you drop to less-than-half-time enrollment or graduate.

However, if you take out additional Stafford loans while you are back in school, you will be eligible for a grace period on those loans after you drop to less-than-half-time enrollment or graduate.

If I consolidate, will I be entitled to the same deferments that I have with my Stafford loans?
Consolidation loans have most of the same deferments that Stafford loans have. You will lose a few deferment options upon Consolidation, but the ones most frequently used by borrowers (the in-school deferment, unemployment deferment, and economic hardship deferment) are still available for a Consolidation loan.

Can I consolidate during a period of deferment?
Yes, you can consolidate during a period of deferment, and, in some cases, this may allow you to obtain a lower Consolidation loan interest rate. If you have variable-rate Stafford loans that were first disbursed before July 1, 2006, the interest rate on those loans actually has two levels. The interest rate is lower when you are in school, in your grace period (the six months after you leave school before you have to start paying back your loans), and in periods of deferment. The interest rate is higher when you are in repayment. So, if you consolidate a variable-rate Stafford loan while you are in a period of deferment, the interest rate on that loan can be up to 0.6% lower, which will have a positive effect on the calculation of your Consolidation loan interest rate.

If you consolidate during an in-school deferment keep in mind that you can only include loans that have been fully disbursed in your Consolidation loan. So any future loans that you intend to take out while continuing your education will have to be repaid separately, which may somewhat complicate your repayment process.

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Lender issues

If I want to consolidate and I borrowed all of my Federal Family Education Loan Program (FFELP) loans from one lender, do I have to apply for my Consolidation loan from that lender?
No. A borrower who borrowed all of his or her FFELP loans from one lender can apply for a Consolidation loan from any lender that participates in the Federal Consolidation Loan Program.

I have decided to consolidate my student loans. I am currently trying to compile a list of all of my lenders. Where can I find this information?
If TG guaranteed all of your loans, you can download a complete summary of your loans and lenders by using TG's Student/Parent Loan Inquiry. If some of your student loans were guaranteed by another guarantor or through the U.S. Department of Education, or you just aren't sure where all of your loans are, you can view a list by going to the National Student Loan Data System (NSLDS) web site at http://www.nslds.ed.gov/.

I recently received a letter from a company that offers loan consolidation. Is it safe to go through a company that solicits business by mail to consolidate? How did they get information about me?
Before you consider applying for a Consolidation loan from a lender you've never done business with before, TG recommends that you ask your current loan holders about their consolidation programs.

Many lenders advertise by mail. Some of these lenders have participated in the FFELP for many years, and some of them are new to the industry and may not have a long track record of service. We suggest that you do plenty of research before deciding which lender you want to use for your Consolidation loan, and don't just rely on unsolicited information you receive by mail to make your decision.

Where can I find a list of lenders that consolidate?
You can find a list of consolidating lenders on TG Online at www.tgslc.org. If you choose the For Families and Students section, and then choose Lender Fact Sheets, you can search for lenders that offer consolidation. TG also recommends that you contact the lender or lenders that hold your loans to discuss consolidation.

I currently have a deal through my Stafford loan lender that if I make a certain number of on-time monthly payments I receive a reduction on my interest rate. I also receive a reduction on my interest rate for having my loan payments debited from my bank account. Do these interest rate "deals" transfer if I decide to consolidate?
Not necessarily. Ask your lender to see if these reductions will transfer to a Consolidation loan. Many lenders offer interest rate reductions of this nature on Consolidation loans, and it pays to do your homework. You may actually have a great deal with the current Stafford loan interest rate deductions your current loan holder offers, and consolidation may not be the best choice for you. It definitely pays to do the math and see which "deal" is best for you.

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Underlying loan issues

Is there a minimum balance required to get a Consolidation loan?
Lenders are permitted to set minimum balance policies, but the amount varies from lender to lender.

I have a PLUS loan and a Stafford loan. Can I consolidate these together?
Yes, as long as you are the borrower of both loans you can include both of them in a Consolidation loan. As a matter of fact, you can consolidate any of the following types of loans into a Federal Consolidation loan:

  • FFELP loans (Stafford, PLUS, SLS, and prior Consolidation loans)
  • FDLP loans (Stafford, PLUS, and prior Consolidation loans)
  • FISL loans
  • Perkins Loans (formerly National Student Defense Loans)
  • Health Professions Student Loans (HPSL), including Loans for Disadvantaged Students (LDS)
  • Nursing Student Loans (NSL)
  • Health Education Assistance Loans (HEAL)

Can I consolidate private loans with federal loans? If so, are the interest rates the same as those for federal loans?
Private, or alternative, loans cannot be consolidated into a Federal Consolidation loan. However, if you do decide to take out a Federal Consolidation loan, your lender will consider your total education loan debt when determining the maximum length of your repayment period under the Consolidation loan. Talk to your lender for more information about this.

I have a Perkins loan in addition to my Stafford loans. Should I consolidate these together?
It's your decision, but make sure you think it out before taking this step.

One factor to keep in mind is that Perkins loans may lose certain borrower benefits if they are included in a Consolidation loan. For example, you may lose certain loan cancellation or deferment benefits. Talk to your school (the holder of your Perkins loan) for more information.

Do I lose any borrower benefits for Stafford loans if I consolidate?
Consolidation loans do not have all of the deferments that Stafford loans do. However, the deferment options most frequently used by borrowers (the in-school deferment, unemployment deferment, and economic hardship deferment) are also available for Consolidation loans.

If I already have a Consolidation loan, can I reconsolidate?
You cannot reconsolidate an existing Federal Consolidation loan by itself into another Federal Consolidation loan.

You can obtain a new Federal Consolidation loan, but only in the following instances:

  • If you are consolidating your existing Consolidation loan with another new eligible loan obtained after the date the original Consolidation loan was made, or
  • If you are consolidating your original Consolidation loan with at least one other eligible loan not included in the original loan.

There may be other options to consolidate an existing Federal Consolidation loan into the Direct Loan Program. For more information, contact TG customer assistance at (800) 845-6267.

If you do obtain a new Federal Consolidation loan, keep in mind that its interest rate will be the weighted average of the loans being consolidated. The interest rate on the original Consolidation loan is no longer variable and still carries the same fixed interest rate it had when you obtained it. Unless the "outstanding" loan (that is, the loan that is not part of the original Consolidation loan) has a significantly high principal balance with a significantly low interest rate, the new Consolidation loan's interest rate will not be much different from the original Consolidation loan's interest rate.

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Repayment issues

I have a high loan balance and I know that if I consolidate I have the option to extend my repayment period to lower my monthly payment. Are there any disadvantages to doing this?
Yes. One very noteworthy disadvantage to extending your repayment period is that you will pay more interest over the life of your Consolidation loan. As a matter of fact, this choice may cause you to pay a significantly higher amount of interest on your loan over the additional years of repayment.

So it's important not to be tempted to take a longer repayment period if you can afford the monthly payments at the shorter repayment period. You'll save more money in the long run. [Examples are provided at "Lower payments, larger payout — is it worth it?"]

I know that I will wind up paying more interest over the life of my loan, but I really need to lengthen my repayment period so that I can reduce my monthly payments. If I consolidate, how long can I take to pay off my loan?
The maximum length of your repayment period depends on the balance of your Consolidation loan and any other education loans you may have. It can go from 10 years to 30 years depending on your balance. Your lender can tell you the maximum repayment period you are allowed based on your balance, but remember, you don't have to take that long to repay your loan. You can decide to take less time than the maximum, and doing so will save you at least some of the interest you will add to your balance by lengthening your repayment period.

Can I prepay my Consolidation loan at any time?
Yes, you can prepay your Consolidation loan at any time without penalty, just like any other FFELP loan. As a matter of fact, it is always smart to pay extra on your loan's principal whenever possible, because this will reduce the amount of interest you pay over the life of your loan. Contact your lender for more information about prepayment.

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Spousal consolidation

My spouse and I both have student loans. Can we consolidate together under one loan?
No. Effective July 1, 2006, married couples can no longer consolidate their eligible student loans in a joint Consolidation loan. Each of you may, however, apply for a separate Consolidation loan.

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General information

Do I have to pay any fees to consolidate?
No. Unlike the Stafford and PLUS Loan Programs that have loan fees, a Federal Consolidation loan borrower does not have to pay any fee to consolidate.

What questions should I ask my lender if I am considering consolidation?
It's a good idea to ask your lender to figure out what your monthly payment will be and how long it will take to pay the total loan balance. If your lender offers you an extended repayment period so that you can have a lower monthly payment, be sure you weigh that option carefully. A lower monthly payment may seem very appealing, but it may also cause you to pay a lot more in interest over the life of your Consolidation loan.

You might also ask your lender to help you figure out if you should include all of your eligible student loans in a Consolidation loan. There may be advantages or disadvantages to consolidating certain loans. Make sure you ask your lender(s) about incentives. Lenders may offer a break on your interest rate if you agree to make your payments through automatic debits each month or if you make consistent, on-time payments for a specified period of time.

Is it ever financially unwise to consolidate?
Generally, it's not a good idea to consolidate if the interest rate you will pay on your Consolidation loan is higher than the rate you are paying on your current loan(s). This may happen in cases when the Consolidation loan interest rate has been rounded to the nearest one-eighth of a percent (as required) and the resulting rate is higher than the rate on the underlying loans being consolidated.

Who can help me decide if consolidation is right for me?
You can contact your lender(s) or your school financial aid office for more information about consolidation.

You can also "do the math" yourself! If you have multiple student loans at different interest rates and want to know what the interest rate will be for a Consolidation loan, there is a Loan Consolidator Worksheet at www.mappingyourfuture.org that can help you make that determination. The worksheet also allows you to find out what your monthly payments might be.

In addition, TG's Customer Assistance team is available to help — just call toll-free: (800) 845-6267.

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