A Federal Consolidation loan allows you to combine all your eligible federal education loans into one new loan — even if your loans are of different types and have different lenders. Loan consolidation is a debt-management strategy that can benefit both student- and parent-borrowers, although it is not the best strategy for every borrower.

Benefits | Potential Pitfalls | Alternatives  | Loans You Can Consolidate | Repayment Options | More Information

Benefits

• Lower monthly payments. Using a Federal Consolidation loan, you may be able to lower your monthly payments, in some cases cutting your monthly payments in half.
• Extended repayment period. Depending on your total education debt, a Federal Consolidation loan may permit you to extend the repayment term - in some cases up to 30 years - if you wish. View the maximum repayment periods for consolidation loans.
• Simplified paperwork that saves you time. With a Federal Consolidation loan, you can enjoy the convenience of a single monthly payment, one check to mail and a single point of contact.
• The possibility of even lower interest rates for borrowers still in their grace period. Interest rates on Stafford loans issued between July 1, 1995, and June 30, 2006, are 0.6-percentage points lower for borrowers who are in their six-month post-school grace period than for borrowers in repayment. So, by consolidating these loans during the grace period, you could lock in an even lower rate. You will lose the remainder of your grace period unless you instruct your lender to hold disbursement of your consolidation loan until the end of your grace period.
• Fixed interest rates. Although rates on Federal Stafford and Federal PLUS loans issued prior to July 1, 2006, vary each year, the interest rate on a Federal Consolidation loan is fixed for the life of the loan. Consolidation rates are based on the weighted average of the interest rates of the loans you want to consolidate, excluding Health Education Assistance Loans. The resulting rate is rounded up to the nearest one-eighth of 1 percent. The rate never can exceed 8.25 percent. Calculate the interest rate on a consolidation loan based on the rates on your current loans.
• No prepayment penalties. You have the flexibility to prepay your Federal Consolidation loan in full or in part, without penalty, any time during the life of your loan.

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Potential pitfalls

• Higher total interest costs. Because loan consolidation generally extends the repayment term, it may double or triple the amount of total interest you pay on your college debt. Calculate the total interest costs of a consolidation loan. Compare these costs to total interest costs of unconsolidated loans.
• Potential loss of benefits by consolidating Perkins loans. You may lose interest-subsidy, deferment or loan-discharge benefits if you consolidate a Federal Perkins loan.
• Potential loss of grace period. If you consolidate your education loans during the six months after you leave school or drop below half-time status, you will forfeit the remainder of your grace period unless you instruct your lender to delay processing your consolidation loan until the end of your grace period. You will be required to begin making payments within 60 days.
• Only one chance to consolidate. Typically, you can consolidate your student loans only once. If student-loan interest rates fall in the future, many borrowers who already have consolidated will not benefit from rate declines on variable-rate Stafford and PLUS loans.

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Alternatives

Flexible repayment options. If you need a more affordable monthly payment, you might consider graduated, income-sensitive or extended repayment as alternatives to loan consolidation.

Combined billing. If the convenience of a single monthly payment is important to you, and all your loans are serviced by the same organization, ask about combined billing. Many servicers automatically provide this service. If your loans are serviced by different entities, you may wish to ask one of your lenders about purchasing your loans from your other lenders.

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Types of loans eligible for consolidation

• Federal Stafford and Federal Direct Stafford loans, both subsidized and unsubsidized.
• Federal PLUS and Federal Direct PLUS loans.
• Federal Consolidation and Federal Direct Consolidation loans.
• Federal Supplemental Loans for Students.
• Federal Perkins loans.
• Federal Nursing Student Loans.
• Health Professions Student Loans.
• HEAL loans.

Private education loans are not eligible for inclusion in a Federal Consolidation loans. Stafford and PLUS loans can be consolidated together only if you are the borrower of both.

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Repayment options for consolidation borrowers

• Level repayment. Most borrowers select this option, also known as standard repayment, because it is the simplest and typically the least-expensive plan. Your monthly payment is fixed for the life of your loan. The minimum payment is $50 per month.
• Graduated repayment. Your monthly payments are low initially and increase over time. This plan is beneficial if you expect your income to increase over the repayment period. Because you begin by making smaller payments, your total interest charges will be higher than they would be with the standard repayment plan.
• Income-sensitive repayment. Payments are adjusted up or down annually to take into account fluctuations in your income. If you are having trouble making your current loan payments, but expect higher earnings down the road, this may be the best plan for you.
• Extended repayment. To qualify for this plan, you must have education debt of more than $30,000, and you cannot have an existing balance on a Federal Family Education Loan Program loan that was disbursed prior to Oct. 7, 1998 . You can take up to 25 years to repay your loans. You can choose either a level or a graduated payment schedule. Of course, the longer you take to repay your loans, the more you will pay in total interest.

Use our loan-consolidation calculator to estimate your monthly payments and interest costs under these repayment options.

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More information

Your best source of additional information regarding applying for loan consolidation is your current lender or servicer, the organization to which you are making your loan payments. If you don't know who services or owns your loans, access the National Student Loan Data System.

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Maximum Consolidation-Loan Repayment Terms