EDU Loan Support

Advantages of Consolidating

There are several potential advantages to consolidating your student loans including:

1.    With more than one student loan, you probably have to remember multiple due dates for your monthly repayments. With just one loan, you have only one repayment due date to remember and one check to write.

2. Extending your repayment term. If you are having difficulty repaying your loans or you anticipate a change in your income or expenses, you may want to consolidate so that you can lengthen the amount of time you have to repay your loans. However, extending the repayment term, or life of the loan, comes at a cost since you will be paying interest on the new loan for a longer period of time.

     3. Lowering your interest rate. If you have one or more private student loans and have improved your credit score since obtaining your loan you may be able to qualify for a consolidated loan with a lower interest rate.

4     4. Switching from a variable to fixed-rate loan. If you have private student loans at differing variable rates of interest, you may be able to consolidate and get one new loan with a fixed rate of interest.

 5 Lowering the monthly payment amount. Lengthening the term of your loan means that you will be paying less each month. 

6. Getting into an alternate repayment plan. Your life circumstances may have changed since you first took on your student loan and the repayment plan you have - for example, the typical 10-year standard repayment plan for most federal loans - may not best fit your current financial situation.

Consolidation offers a way to select among other repayment plans such as the following federal consolidation loan repayment options:

• Extended repayment stretches your loan repayment period from 10 to between 12 and 30 years (depending on your loan balance)
• Graduated repayment allows you to begin payments at a lower monthly amount and then gradually increases that repayment amount each two years.
• Income-contingent repayment plans determine your monthly repayment amount based on your income and total outstanding debt and then periodically change that amount as your income changes.
• Income-sensitive repayment plans calculate your monthly payment amount as a percentage of your pretax monthly income.

7. Getting borrower benefits. Lenders will often offer loan holders certain benefits for being a good borrower. If your lender does not provide any benefits, you may want to consider consolidating your loans with a lender who does. Types of benefits can include discounts on interest rates for automatic payments made from your bank account and/or paying on time.

Advantages of Federal Loan Consolidation

Receive a single monthly bill for all loans you consolidate. Lock in a fixed interest rate for your entire repayment period. You can lock it in for your entire repayment period if you consolidate after July 1, when the new variable rates are changed.  Reduce your monthly payment Depending on the amount you consolidate, extend your repayment period up to 30 years, and lower your monthly payment. Note: You may not need to consolidate to reduce your monthly payment: Direct and Direct Grad PLUS Loans already provide for extended or graduated payment options. Check with your lender for further details on these options. If you qualify for income-based repayment (IBR) your monthly payments will be capped. Have your loans forgiven under the new Public Service Forgiveness Provisions The new Public Service Forgiveness provisions apply only to Federal Direct Loans (not to FFELP Loans, such as Direct, Direct Grad PLUS, etc.). Therefore, if you think you may be eligible for Public Service Forgiveness, you MUST consolidate your existing loans into a Federal Direct Consolidation Loan after July 1 to be eligible. To read about Public Service Forgiveness Provisions,

Why Consolidate?

This page discusses the pros and cons of consolidation. Although the switch to fixed interest rates on Stafford and PLUS loans eliminated one of the financial incentives to consolidate, there are still several reasons why borrowers may want to consolidate their education loans.

The key benefits of a consolidation loan include the following:

• Single monthly payment. Consolidation replaces the multiple payments on multiple loans with a single payment on the consolidation loan. A student might graduate with as many as a dozen loans or more. Consolidation combines these into a single loan with a single monthly payment. This simplifies the repayment process.
• Alternate repayment plans. (More-manageable monthly payments.) Consolidation provides access to alternate repayment plans, such as extended repayment, graduated repayment, and income contingent repayment. Although these plans may be available to unconsolidated loans, the term of an extended repayment plan depends on the balance of the loan, which is higher on a consolidation loan.

Alternate repayment plans often reduce the size of the monthly payment by as much as 50% by increasing the term of the loan. This can make the monthly payments more affordable and management, but it does increase the total interest paid over the lifetime of the loan.

• Reduces the interest rate on some PLUS loans. Consolidating an 8.5% fixed rate PLUS loan reduces the interest rate by 0.25% because of the lower 8.25% interest rate cap on consolidation loans. To maximize the interest rate reduction, the PLUS loans must be consolidated by themselves. However, one must also consider the impact of consolidation on available student loan discounts.
• Resets the clock on deferments and forbearances. Consolidation resets the 3-year clock on certain deferments and forbearances. A consolidation loan is a new loan, with its own fresh set of deferments and forbearances.

This is a useful tool for medical school students, who do not get an in-school deferment during the internship and residency periods. They are, however, eligible for an economic hardship deferment for up to three years. If they need more than three years, consolidation is a useful tool for getting up to another three years of deferment.

• Restarts the loan term on loans already in repayment. Even if you stick with standard ten-year repayment, when you consolidate loans that are already in repayment, it resets the loan term on those loans, since a consolidation loan is a new loan. This can give you some of the benefits of an alternate repayment plan, such as a lower monthly payment, without extending the term as much as typically occurs with extended repayment.

On the other hand, if you are close to the end of your repayment term, you might want to avoid consolidation because the savings will not be great enough for it to be worth the bother.

• Switch lenders for better loan discounts. Consolidating your loans allows you to switch from one lender to another. You can also switch from Direct Loans to FFEL and vice versa. If you shop around, you might be able to get a better discount on loan interest rates and better rebates on the fees.

With the switch to fixed rates on Stafford and PLUS loans first disbursed on or after July 1, 2006, the ability to lock in the interest rate on a variable rate loan is no longer relevant for most borrowers. Students could also previously consolidate during the in-school or grace period to lock in the lower in-school interest rate using the in-school interest rate loophole, which was repealed in 2006.

Nevertheless, borrowers who still have unconsolidated variable rate loans may wish to consider consolidating during the grace period to lock in the lower in-school rate. (The interest rates on variable rate loans also change each July 1, based on the last 91-day T-bill auction in May. Depending on whether the rates are increasing or decreasing, borrowers might want to consolidate before or after July 1. Many lenders will hold the consolidation loan application to provide borrowers with the best rate and to maximize the grace period. But when interest rates are less volatile, consolidating during the grace period is often more important than the July 1 change in rates.)

Some graduate students have found it necessary to consolidate their educational loans when applying for a mortgage on a house.