Federal Student Loan Consolidation Loan

Options for Financial Difficulties

A Federal Student Loan Consolidation Loan is like any consolidation loan; the consolidating lender pays off your existing student loan accounts and incorporates all of your student loan debt into one account. If your financial difficulty is caused by the simple fact that your payments are just too high for your income, then a student loan consolidation may be in order.

Consolidating your student loans can be very helpful in a number of ways:

  • It brings all of your student loans together into one account. This means you would have only one student loan payment to make each month, and would have to deal with only one servicer;
  • Married persons can consolidate their loans together;
  • Your monthly payments for a consolidation loan may be smaller than your current monthly payments because consolidation lenders can extend the repayment period beyond the 10 years you are given for most student loans.

However, you should be very cautious before entering a consolidation agreement. You should carefully compare the benefits available to you for your existing accounts with those that would be available to you after a consolidation. Make sure that you would not forfeit an entitlement that you expect to be able to use. For instance, if you qualify, or expect to qualify, for a partial cancellation of your Federal Perkins Loan, you would not want to include that loan in a consolidation. By doing so, you would lose your right to the cancellation and instead you would have to repay the loan in full.

You should be also be aware that if your repayment period is extended, paying a consolidation loan at the scheduled amount will be more expensive than if you paid your student loan accounts separately. This is because by extending the repayment period, you will incur additional interest costs. You can eliminate this effect by requesting a repayment term that is equal to the time remaining on your individual student loan amounts, or by repaying the consolidation within that period if you agree to the extended term.

To be eligible for a consolidation loan:

  • your combined outstanding student loan amounts must exceed $7,500.
  • you cannot be in default on your student loans unless you have made "satisfactory repayment arrangements" (six consecutive months of payments as arranged with the lender).
  • you must first request a consolidation from a current lender/servicer. If none of your current lenders/servicers offer a consolidation loan, or is not accepting applications, you may apply to any lender that offers a Federal Student Loan Consolidation or the Federal Direct Consolidation Program.

See our links page for a list of lenders who offer Federal Student Loan Consolidation Loans.