Consolidation: What is it?
Consolidation combines multiple federal student loans into a single loan with one monthly payment; this payment can be significantly lower than the payment required otherwise. A Consolidation Loan pays off the existing federal student loans; the borrower then repays the Consolidation Loan. Most federal student loans are eligible for consolidation, including subsidized and unsubsidized Federal Direct and Federal Stafford Loans, Federal Graduate PLUS loans, Federal Perkins Loans, and Health Professions Student Loans. Parents can also consolidate their Federal Parent PLUS loans.
Consolidation Loans are available through the FFEL (Federal Family Education Loan) program and the Federal Direct Loan Program. Both allow the borrower to combine different types and amounts of federal student loans to simplify repayment.
Advantages of consolidation
- Possibly lower monthly payments.
- Possibly longer repayment period.
- Fixed interest rate for the life of the loan.
When can loans be consolidated
Borrowers with one or more Federal Direct Loan or Federal Stafford Loan, and borrowers with a combination of Federal Direct Loans and Federal Stafford Loans, have the option to consolidate under either program. All Federal Stafford Loan and Direct Stafford Loan borrowers are eligible for consolidation after they graduate, leave school, or drop below half-time enrollment. You may also consolidate your loans during periods of deferment or forbearance. Federal PLUS loans are also eligible for consolidation once they are fully disbursed.