I’m a sucker for breaking the awkward silence. If a professor waited long enough after asking a question in college, I would always pipe up. Well, if I kind of knew the answer.
I asked y’all for questions about student loan consolidation, and so far you haven’t asked any! Well, the awkward silence is getting to me—so I’m going to raise my hand and ask (as well as answer) questions that I’ve been asked in the past.
What exactly is consolidation?
Consolidating means taking out one new student loan that combines your other student loans. Your consolidation loan lender will pay off the loans you are combining, so you’ll have one new loan for the total amount. BTW, when people talk about student loan consolidation, they’re usually referring to federal loan consolidation. Some lenders also offer options for private loan consolidation.
Am I eligible?
If you have federal student loans—no matter which lender holds them—you can consolidate them with any lender. Here are the federal loans that I’m talking about:
- Federal Family Education Loan Program loans (Stafford, PLUS, SLS, and Consolidation Loans)
- Federal Direct Loan Program loans (Stafford, PLUS, and Consolidation Loans)
- Federal Insured Student Loans (FISL)
- Federal Perkins Loans
- Health Professions Student Loans (HPSL)
- Nursing Student Loans (NSL)
And yes, you read that right. If you already have a federal consolidation loan and take out another federal loan (say you go back to school after a couple years to get a master’s degree), you can "reconsolidate" and add more federal loans.
You can also consolidate a single Federal Stafford or Federal PLUS loan if you want to lock in the rate.
Why should I consolidate?
Consolidation offers a couple key benefits:
- You might see a lower payment each month—which can help when you’re trying to manage other monthly payments while paying back your loan.
- Instead of making several payments, you’ll only have to make one.
- Your loan will have a fixed interest rate—this is a big one, especially if you have variable-rate federal loans. The next questions tell you why.
What kind of rate will I get?
For federal loan consolidation the rate is an average of the rates on all the loans you are consolidating, rounded to the nearest one-eighth of a percent. But it won’t get higher than 8.25%. Speaking of rates …
When should I consolidate?
This is an important question right now because students with variable-rate federal loans will see an interest-rate increase on July 1, 2007. If you have a federal loan that was issued before July 1, 2006, you’re in this boat. These loans also increase by 0.60% when your grace period ends, so it’s better to consolidate while in grace.
Why shouldn’t I consolidate?
In some situations, there may be a better option to ease your loan repayment—like different payment options.
Also, you need to be aware of the disadvantages of consolidation. Since you might be extending your repayment term, you could end up paying more interest in the long run. And, it’s possible you might lose any borrower benefits you’ve been reaping on your loans.
Here’s a good checklist that walks you through your decision.
What else should I know about consolidation?
- You can’t "unconsolidate" your loans. Once you consolidate, your old loans don’t exist anymore—your consolidation lender paid them off.
- Until your lender tells you your consolidation is complete, you need to continue making payments on all your separate loans.
OK, now that the silence is broken, is there anything else that you’re wondering? If so, raise your hand.