Loan Consolidation Facts
Frequently Asked Questions
1. Why do people consolidate their federal student loans?
2. How is my interest rate calculated for a consolidation loan?
3. Are there prepayment penalties?
4. Are there any negative consequences to student loan consolidation?
5. Will i incur any fees and/or charges consolidating my student loans?
6. Can I refinance a consolidation loan?
7. Am I still eligible for the same federal benefits?
8. Is the interest rate on a consolidation loan fixed or variable?
9. What loans are eligible for student loan consolidation?
10. Is it possible to include private loans in my Federal Consolidation loan?
11. What consolidation benefits do your current lenders offer?
Why do people consolidate their federal student loans?
Federal student loan interest rates are at an all time low. When consolidating student loans, you lock in the interest rate for the duration of the consolidation loan.
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How is my interest rate calculated for a consolidation loan?
It is a weighted average of the interest rates on all of the loans to be consolidated and round up to the nearest 1/8 of 1.
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Are there prepayment penalties?
There is no penalty for prepaying your consolidation loan at any time. In fact, every penny you pay over the amount owed each month is automatically applied towards the principal, NOT interest.
Are there any negative consequences to student loan consolidation?
Yes and No. If you take a longer amount of time to pay off your student loan debt, you will pay more interest over the course of loan repayment. However, because there are no prepayment penalties and it is a simple interest loan, if you continue making the same payments you were making prior to loan consolidation, you will not pay more in interest and pay off the loan even quicker than your previous loan.
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Will I incur any fees and/or charges consolidating my student loans?
You will not incur any fees, costs, or charges for consolidating your student loan debt.
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Can I refinance a consolidation loan?
Yes and No. The U.S. Dept of Education does not allow a borrower to refinance a consolidation loan. However, if you have additional federal loans not included into the original consolidation, those loans may be added and recalculated into a new Federal Consolidation Loan.
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Am I still eligible for the same federal benefits?
Yes! Because student loan consolidation is a federal program, you are still entitled to benefits - such as deferment, forbearance, and tax-deductible interest. The loan is also government guaranteed as well as federally insured.
Additionally, if you decide to consolidate your Perkins Loan(s), you will lose the interest subsidy on this portion of your debt. However, because the interest rate on your Perkins Loan is 5%, the inclusion of the Perkins Loan(s) into your consolidation loan may have a positive impact on the calculated average used to determine the interest rate on your consolidation loan.
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Is the interest rate on the consolidation loan fixed or variable?
Interest rate is fixed on consolidation loans, which means your interest rate will never change for the life of the loan, even if interest rates go up.
What loans are eligible for student loan consolidation?
Following is a list of eligible federal student loans:
- Subsidized Federal Stafford Loans & Guaranteed Student Loans (GSL)
- Direct Subsidized Stafford Loans
- Direct Unsubsidized Stafford Loans
Direct PLUS Loans - Direct Unsubsidized Consolidation Loan, including Direct PLUS Consolidation Loans
- Unsubsidized and Nonsubsidized Federal Stafford Loans
- Federal Nursing Loans
- Health Education Assistance Loans (HEAL)
- Federal Perkins Loans, formerly Nations Defense/National Direct Student Loans (NDSL)
- Federal PLUS (Parent) Loans
- Subsidized Federal Consolidation Loans
- Unsubsidized Federal Consolidation Loans SLS- Federal Supplemental Loans for Students (formerly Auxiliary Loans to Assist Students (ALAS) and Student PLUS Loans)
Is it possible to include private loans into my Federal Consolidation loan?
Yes and No. Private loans are not eligible for the FFELP Consolidation loan - however, non-Federal student loans can still count towards your cumulative loan balance, which enables one to extend the repayment term.
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What consolidation loan benefits do your current lenders offer? Check with your current lender to see what terms and repayment plans they can offer.
