If you have more than one federal student loan, you may be able to consolidate them into a single new Direct Consolidation Loan with a fixed interest rate and one monthly payment.
If you're having trouble paying your separate loans, consolidation will allow you to extend the repayment term up to 30 years, making the monthly payment lower than the combined payments you were making.
Simplifying the repayment process is the primary advantage of consolidation. Rather than paying several lenders, you pay just one. In addition, consolidating different types of federal loans in a Direct Consolidation Loan may make the balance eligible for forgiveness if you work in a public service job.
QUESTIONS ABOUT CONSOLIDATIONBefore you consolidate, you should consider this decision carefully and ask for advice from your Student Finance department and a Student Finance Professional. There are some good reasons to consolidate, but it's not the ideal solution for everyone. Also, once you consolidate your loans, you can't change your mind.
Here are some issues to keep in mind:
- Extending the repayment term to 30 years will increase the interest you pay, making borrowing more expensive — sometimes significantly so.
- You may lose some of the benefits provided by your original repayment plans, including loan cancellation benefits, principal rebates, or interest rate discounts.
- You may pay a higher rate on the combined loan balance than you were paying on some of the individual loans. The fixed rate on a Direct Consolidation Loan is based on the weighted average of the interest rates on the loans you are consolidating, rounded up to the nearest one-eighth of 1%. It can't be higher than 8.25%.
A CONSOLIDATION CHECKLISTTo help you decide if consolidating your loans makes financial sense, take the following steps:
- Go to www.nslds.ed.gov to review your current loan account and confirm the identity of the lender or servicer.
- Calculate your total current monthly payment.
- Contact your lender or servicer to answer questions you may have about what you owe or what you are paying now.
- Use the link to the Direct Loan Consolidation online calculator below to estimate what your new payment might be if you consolidated. The amount will be calculated using a weighted average interest rate based on the amounts and rates of your existing loans.
- Make the decision to consolidate or not by comparing what your monthly payment would be if you consolidated in comparison to what it is now. Two other factors to consider are how much more interest you would pay overall if you repaid the consolidated loan over its full term and whether it would be more convenient to make just one payment a month or continue to make several different ones.
You can apply for a Direct Consolidation Loan by submitting an application electronically online, by downloading a paper copy of the application and promissory note at the same website, or applying over the phone at 800-557-7392 if all of the loans you are consolidating are Direct Loans.
Repayment begins as soon as the new loan is disbursed, and is due within 60 days. The repayment term can be from 10 to 30 years, depending on the amount you owe and the repayment plan you select.
Here's a calculator that can help you understand the decision to consolidate.
When you consolidate, you may lose some of the benefits provided by your original repayment plans, including loan cancellation benefits.