What is student loan consolidation?
Student loan consolidation is a tool to combine all your debt into one loan, with one bill and one payment made to one lender.
Why is consolidation advised?
Consolidation is attractive as it simplifies the loan repayment process. It reduces the amount of monthly payments and shields you from possible rate variations in the future. It also gives you more time to repay the loan and it shows no outstanding loan amounts on your account.
When is the right time to consolidate?
The right time to consolidate is immediately after you graduate, but before the end of your grace period. Adherence to this schedule ensures the lowest possible interest rates.
I have not finished my schooling yet. Can I consolidate?
The option to repay while still in school was eliminated as on July 1, 2006. You can consolidate six months and one day after graduation, or after you cease to be enrolled at least half time.
Whom should I approach for loan consolidation services?
That depends on your loan. Federal loans can be consolidated through any government-approved private lending institution or through the U.S. Department of Education. They're offered by just about every major federal loan organization, including the Federal Family Education Loan Program (Stafford, PLUS, SLS), FISL, HEAL, Guaranteed Student Loans, and Direct Loans. Some banks and other private lenders also offer consolidation loans.
Can I apply for consolidation from any lender?
In a way, yes, you can do so through any FFEL consolidation lender, but be wary of direct mail solicitations from them.
Which loans can be consolidated?
Unsubsidized Federal Stafford Loans
Federal Parent Loans for Undergraduate Students (PLUS)
Federal Supplemental Loans for Students (SLS)
National Direct Student Loans (NDSL)
Health Professions Student Loans
Federal Perkins Loans
Subsidized Federal Stafford Loans
All Federal Direct Student Loans (Direct Loans)
Health Education Assistance Loans (HEAL)
Nursing Student Loans
Student Consolidation Loans
Federally Insured Student Loans (FISL)
Loan from the Department of Education
Which loans are ineligible for consolidation?
Loans which become ineligible for consolidation are: combined federal loans with non-federal student loans obtained through a bank, credit union, or other type of financial institution; loans from the institution or school you attended; loans made to you by a friend or family member; or consumer debt such as personal or automotive loans from your bank, credit union, or other financial institution.
Who can consolidate?
Both student and parent borrowers can consolidate, but separately.
When can one consolidate?
One can consolidate during the grace period or after the loans enter the repayment phase. You cannot consolidate while you are still in school.
Can parents consolidate PLUS loans? Is it right?
Yes, parents can, and in fact should, consolidate PLUS loans. Consolidating a PLUS loan can yield savings since it reduces the interest rate.
Is there any minimum amount to consolidate?
Some lenders insist on a minimum balance. Usually it is $7,500, although some may allow you to consolidate with only $5,000 in loans. The Federal Direct Consolidation Loan Program does not have any such stipulation.
Will I have to pay more if I extend repayment to 30 years?
By extending repayment terms, borrowers will pay more over the life of the loan due to the interest that they will pay on the loan balance over a longer period of time. However, extending your repayment term lowers the monthly payments. There are also no prepayment penalties, so if you choose, you can pay off the loan in a shorter period and save on total interest payments.
I consolidated a few years ago. Can I consolidate again?
It depends. If you consolidated in the past with anyone other than the U.S. Department of Education, you can't do it again unless you have new loans that were not a part of original consolidation or you have multiple consolidations from different lenders.
Does it cost to consolidate?
There are no fees or costs for consolidating federal student loans.
Am I eligible for a consolidation loan?
To be eligible, you must have at least $7,500 in eligible outstanding loans and you must not be in default on your federal student loans.
What will my new monthly payments be after I consolidate?
It will depend upon the total amount of the loans you consolidate, the repayment plan you opt for, the repayment term you select, and the interest rate it attracts.
Can I pay off my loan early?
You can make early payments or larger-than-scheduled payments at any time with no penalty or cost.
Can my spouse and I consolidate our loans together?
As of July 1, 2006, spouses can no longer consolidate their student loans together.
When can I take advantage of my deferment or forbearance options?
Once you consolidate, you will receive paperwork for your payment schedule. At that time, you may request a deferment or forbearance form.
My consolidation application is in process. Should I continue making loan payments?
Yes! Until you are notified that your loans have been paid off through consolidation, continue paying your student loan repayments. Since consolidation can take around 30 to 90 days, it's important you don't fall behind on payments.
Is there any credit check required to consolidate?
With federal student loan consolidations, there are no credit checks, because your federal student loans are guaranteed by the U.S. government. Nonetheless, consolidation improves your credit rating.
Once I have consolidated, can I add more loans to it?
Yes. Within 180 days of the funding date of your consolidation loan, you can add additional eligible loans to it.
Should I rehabilitate a defaulted loan before I consolidate my defaulted loan?
Yes, as there several benefits to rehabilitate a defaulted loan before consolidation. If you consolidate a defaulted loan without rehabilitating it, your credit record will indicate that the loan was in default but then paid in full. This is true even after the consolidation loan pays off the defaulted loan in full. This notation will remain on the credit report for up to seven years. While a "paid in full" notation is preferable to an unpaid default, there is still the possibility that lenders will deny you future credit, such as mortgages, auto loans, or credit cards because of this notation. However, if you rehabilitate a defaulted loan before consolidating it, your credit record will no longer reflect the default status of the rehabilitated loan. Also, many consolidation companies will not consolidate your defaulted loans unless you have rehabilitated them, and are out of default.
Can I consolidate private loans?
You cannot consolidate private education loans into the federal consolidation loan program. However, some lenders offer private consolidation loans for such loans. It is not advisable to consolidate the two loans together, as it would often increase the interest rate. You would also lose several important benefits of the federal education loans, such as flexible repayment terms and generous loan forgiveness and cancellation provisions. Besides, since private consolidation loans are a variable rate loan, you aren't locking-in a lower rate.
Is consolidation for those who don't know how to manage their money?
No. Refinancing student loans through consolidation is not a borrower's last resort but a financial management decision. Borrowers who choose to consolidate gain a number of benefits, including low, fixed interest rates, flexible repayment options, and single-billing convenience.
If I consolidate, will I be in debt and incur excessive interest for a lifetime?
No. Many borrowers consolidate to achieve a fixed interest rate, which can save you a lot of money over time. Consolidating will actually help you eliminate debt.
Can I change my repayment plan once the consolidation loan is over?
Yes. You can change your repayment plan whenever you choose. Also, as it comes with no prepayment penalties, you can make extra payments any time. This benefit greatly reduces the cost of interest and length of repayment.
Is consolidation the right option for me?
Consolidating is a great way to save money and time. You will be able to save a large sum of money by locking-in a low interest rate, and possibly lower your monthly payments.
Can consolidate help in saving money?
Yes! In addition to saving you money by locking-in at a low interest rate, many lenders offer loan discounts for having your monthly loan payments direct debited from your bank account. They may also offer an interest rate reduction for making on-time monthly payments.
Can I pay more than the required minimum loan payment each month?
Yes, and by doing so, you can shorten your loan term and decrease your interest costs. The extra money you pay each month deducts the principal balance of your fixed interest rate loan helping you pay-off your loan faster.
Does consolidation affect my credit rating?
Yes! Consolidating your outstanding student loan debt can actually help to improve your credit! Upon consolidation, your multiple student loans are paid off, leaving you with only one open account. Thus, it appears that you have paid-off all of your outstanding loan balances, and now only have one account open. Therefore, your credit score is improved.
Disclaimer: This article is only for informational purposes and should not be construed or relied upon as legal advice. We do not make any claims, promises, or guarantees about the accuracy, completeness, or adequacy of any of the information provided in this article.
Article Title : FAQs about Federal Student Loan Consolidation
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