Office of Student Financial Assistance

Consolidation: What is it?

Consolidation combines multiple federal student loans into a single loan with one monthly payment; this payment can be significantly lower than the payment(s) required otherwise. A Consolidation Loan pays off the existing federal student loans; the borrower then repays the Consolidation loan. Most federal student loans are eligible for consolidation, including Federal Stafford Loans, Federal Graduate PLUS Loans, Federal Perkins Loans, and Health Professions Student Loans. Parents can also consolidate their Federal Parent PLUS loans.

Consolidation loans are available through the Federal Direct Loan Program. They allow the borrower to combine different types and amounts of federal student loans to simplify repayment.

What are the advantages of student loan consolidation?

What's the interest rate on a Consolidation Loan?

Federal Direct Consolidation loan has a fixed interest rate which is set according to the formula established by law. The interest rate is the weighted average of the current rates charged on the loans being consolidated, rounded up to the nearest one-eighth of a percent. The interest rate will not exceed 8.25%. Currently, the rate is fixed for the life of the Consolidation Loan.

What is the repayment period for a Consolidation Loan?

The repayment period may be from 10 to 30 years, depending on the amount of debt you consolidate and the repayment plan you choose. You may also repay your Consolidation Loan in a shorter period than the maximum allowed without any pre-payment penalty.

With a Federal Direct Consolidation Loan, if you consolidate while in your grace period, you will begin payment of the Consolidation Loan within 60 days. Thus, borrowers who apply too early in their grace period will forfeit the rest of that grace period.

If you consolidate your Federal Perkins Loan or your Health Professions Loan, you may forfeit special borrower benefits that accompany those programs (such as a longer grace period).

Are there disadvantages to student loan consolidation?

There could be. Although consolidation can simplify repayment and may lower your monthly payment, you should carefully consider if you want to consolidate all your loans. For example, you may lose some discharge (cancellation) benefits if you consolidate a Federal Perkins Loan in a Consolidation Loan. Also, if you extend your repayment period when consolidating your loans, you may pay more interest over time.

Once a consolidation has been completed, it may not be reversed. The loans included in the consolidation no longer exist as they have been paid off as part of the process. Be sure to research all consolidation options before you apply.