As a college student or a recent graduate, thinking about student loans and how you’ll pay them off is something that has probably been on your mind more often than you would like. There is so much information available that it can make figuring out your best course of action quite difficult. Here are some of the most frequently asked questions on consolidating student loans; hopefully they will help answer some of the questions that have been going through your mind as well.
Q: Am I required to pay a consolidation fee?
A: No. It is not required for a borrower to pay a fee. On top of that, when it comes to federal education loans, there is never an application fee; this includes a Direct Consolidation Loan.
Q: Am I able to re-consolidate onto a Direct Consolidation Loan if I Currently have a FFELP Consolidation Loan?
A: If you are an FFELP Consolidation Loan borrower, there are some purposes for which you are able to consolidate said loan into a Direct Consolidation Loan, for example:
- If the borrower´s loan holder has asked the guarantor for default aversion services and you are seeking an IBR (Income-Based Repayment) or an ICR (Income-Contingent Payment).
- If in a bankruptcy proceeding, an adversary complaint has been filed by the borrower and they are seeking an IBR or ICR plan.
- To obtain the benefit of loan forgiveness of public service.
Q: If I am considering consolidation, which questions should I ask my Direct Loan servicer?
A: Asking the servicer to figure out the amount that you would have to pay a month if you were to consolidate as well as the amount of time it would take to pay off the complete balance is always a good idea. If you are offered an extended repayment period by the servicer, meaning that your monthly payments would be lower, it is important to carefully weigh out that option. Although it may sound quite appealing to pay a lower monthly fee, it may imply that over the life of your Consolidation Loan, you will have to pay a lot more in interest.
It may also be helpful to ask the Direct Loan servicer to assist you in figuring out whether all of your eligible student loans should be included in a Direct Consolidation Loan. Consolidating certain loans may have some advantages as well as some disadvantages so it is best to be informed ahead of time.
Q: Is consolidating ever financially unwise?
A: It is usually not a good idea to consolidate if you will be paying a higher interest rate on your Consolidation Loan than the current rate you are paying on your loans.
Q: Who would be able to help me decide whether it is best for me to consolidate?
There are professionals who can assist you or you can get in touch with your school’s financial aid office or the Direct Loan servicer and inquire about consolidation. There are also consolidation calculators online that can help you to do the math yourself. However, if you want to make sure that you have all the accurate information, seeking the assistance of a professional may be the best option.
Other Frequently Asked Questions
Q: I am looking to go back to school, even if it is at least on a half-time basis; however I have a Direct Consolidation Loan. While in school will I have to make payments on my Direct Consolidation Loan?
A: No. If your Direct Consolidation Loan servicer receives information on behalf of your school stating that you have once again enrolled, even if it is on a half-time basis or if they receive your in-school deferment request, your Consolidation Loan will be placed by your servicer into an in-school deferment status.
This means that until you have graduated or if you drop to an enrollment that is less than half-time, you will not have to make payments on your Consolidation Loan. Of course, while you are in school you can always make payments towards your loan. Potentially every payment that you make can lower the amount of interest which accrues.
Remember that within sixty days after graduating or having dropped to less than half-time enrollment, you will have to start making payments to your Consolidation Loan. If, however, while you are back in school, you take out an additional Direct unsubsidized and/or Direct Subsidized loan, once you graduate or drop to less than half-time, you will be eligible for a grace period on those acquired loans.
Q: If I have a Direct Consolidation Loan, do I still qualify for the same deferments I did with my Direct Unsubsidized and Direct Subsidized loans?
A: Most of the deferments that accompany Direct Unsubsidized and Direct Subsidized loans apply to Consolidation Loans. Upon consolidation, you do lose a few deferment options; however, those that borrowers most frequently use are still available with a Consolidation Loan.
Q: It has been difficult for me to make my monthly payments towards my Direct Consolidation Loan, but I do not qualify for a deferment. Would I qualify for forbearance?
A: A Direct Consolidation Loan borrower is still eligible for forbearance. The provisions of forbearance for Consolidation Loan borrowers are the same as those for Direct unsubsidized, Direct Subsidized, SLS, and PLUS loan borrowers.
Q: During a period of deferment, am I able to consolidate?
A: Yes, during a period of deferment you are able to consolidate, and there are cases in which doing so may actually help you to obtain a loan interest rate on consolidation which is lower.
Q: I will be consolidating my FFELP student loans onto a Direct Consolidation loan. If I need to compile a list with all of my loan holders, where would I be able to obtain this information?
A: All of the federal education loans can easily be accessed and viewed by going to the NSLDS (National Student Loan Data System) website. To access your data it is required that you enter your FSA (Federal Student Aid) ID.
Q: In order to obtain a Direct Consolidation Loan, is there a minimum balance required?
A: No, to get a Direct Consolidation Loan, there is no minimum balance required.
Q: I have a Direct loan as well as a PLUS loan, can these be consolidated together?
A: As long as you are in fact the borrower of both of those loans, yes, they can both be included in a Direct Consolidation Loan. Any of the following types of loans can be consolidated into a Direct Consolidation Loan:
- Direct or FDLP loans, meaning Direct Unsubsidized, Direct Subsidized, PLUS, as well as any prior Consolidation loans.
- FFELP loans, meaning PLUS, Stafford, SLS as well as any prior Consolidation loans.
- Perkins loans which were formerly known as National Student Defense Loans.
- SISL loans.
- NSL (Nursing Student Loans).
- HPSL (Health Professions Student Loans); these include LDS (Loans for Disadvantaged Students).
- HEAL (Health Education Assistance Loans).
It is, however, important to note that if a parent PLUS loan is consolidated with the other notes which are mentioned above, the consolidation plan that results will not be eligible under the Income-Based Repayment Plan, for repayment.
Q: Am I able to consolidate a private education loan with a federal student loan? If possible, will the interest rates be the same as the ones for federal loans?
A: Loans that are private or alternative are not able to be consolidated into a Direct Consolidation Loan. That being said, if you have decided to take out a Direct Consolidation Loan, your total education loan debt will be taken into consideration by your Direct Loan servicer when determining the maximum time period of your repayment time under your Consolidation Loan.
Q: In addition to my Direct and/or Stafford loan, I have a Perkins loan. Should these be consolidated together?
A: One factor to consider is that certain borrower benefits may be lost with a Perkins loan if they were to be included in a consolidation loan. For example, certain deferment or loan cancellation benefits may be lost. This is best discussed with the holder of your Perkins loan (which is the school); they can provide in-depth information on the subject.
Q: If I consolidate, will I lose any benefits on my Direct Unsubsidized and Direct Subsidized loans as a borrower?
A: All of the deferments which Direct unsubsidized and Direct Subsidized loans have are not included in a Consolidation loan. That being said, the deferment option that borrowers use more frequently, such as the unemployment deferment, the in-school deferment, and the economic hardship deferment will also be available for Consolidation loans.
Q: My loan balance is still high and I am aware that if I were to consolidate, I would have the option of extending my repayment period and therefore lower my monthly payment. Are there any disadvantages associated with taking this option?
A: There is one disadvantage associated with extending your repayment period which is very noteworthy. Over the life of your Consolidation Loan, you will pay more interest. As a matter of fact, by opting for this choice you may actually have to pay interest on your loan over the additional repayment year that will be significantly higher.
This is why it is crucial that if you are able to afford the monthly payments over the repayment period that is shorter, to not be tempted into opting for a repayment period that is longer. In the long run, you will be saving more money.
Q: I am aware of the fact that I will end up paying more interest over the lifetime of my loan, however, it is necessary for me to lengthen the period of my repayments so that my monthly payment will be reduced. If I were to consolidate, how long would I be able to take to pay off my loan?
A: The balance of your Consolidation loan as well as any other education loans you may have acquired plays into the maximum length of your repayment period. Depending on your balance, it may be from 10 to 30 years. You will be informed by your lender on the maximum period for repayment based on your balance, but keep in mind that it does not mean you have to take that specific length of time to pay it back.
You are able to opt to take less time than the designated maximum amount of time if doing so you will save at least a bit of the interest that will be added to your balance by choosing to lengthen the period for your repayment.
Q: Am I able to at any time prepay my Direct Consolidation Loan?
A: Yes, you are able to at any time prepay your Direct Consolidation Loan and there will be no penalty, this is exactly like you would any other Direct Loan. On top of that, paying extra on your loan’s principal as often as possible is a smart idea; this will help to lower the amount of interest that over the life of your loan will have to be paid.
In conclusion, it can be very difficult to fully understand and properly deal with the consolidation of your student loan. Hopefully the questions and answers outlined above have helped to clear some of these issues up. If you find yourself in need of further information and/or assistance, we encourage you to reach out to a professional to talk through things in more detail.