Consolidation

When you have more than one student loan, you may elect to combine them into one consolidated loan, which may create more favorable terms and simplify repayment, benefitting both you, the borrower, and the lending agency. For that reason the Higher Education Act (HEA) allows for consolidation under an income-sensitive plan, Federal Family Education Loan (FFEL) program, and an income-contingent plan, Ford Federal Direct Consolidation Loan Program (Direct Loan program).

Under either of these programs, a borrower’s loans are paid in full and a new consolidated loan is created, in the amount of the combined total of the previous loans. The new consolidated loan streamlines repayment by eliminating different terms, repayment schedules, or lenders. In Direct Loan consolidation, the interest rate may be lower than one or more of the underlying loans. In both programs, the monthly repayment amount on a consolidation loan is usually lower and the amount of time to repay may be extended beyond what was available in the separate loan programs.

For Direct Consolidation Loan applications received after July 1, 2006, you cannot consolidate loans that have in-school status. These loans have not yet entered or used up the six-month grace period. If you elect to consolidate under the Direct Consolidation Loan Program, you may may consolidate your loans after graduation; during the loan grace period; or while in repayment.

No benefit is derived from consolidating fixed interest rate loans first disbursed on or after July 1, 2006, even though you may do so, since the interest rates for both the grace and repayment periods on those loans are the same.

If you consolidate during your grace period, repayment will begin approximately 60 days after the loan consolidation process is completed. If you apply too early, you may lose part of the six-month grace period.