Consolidation
Loan consolidation can be helpful if you have large loan amounts to repay or have several different lenders to repay. Loan consolidation allows you to combine your various federal loans into one new loan payable to one lender. The types of loans which can be consolidated are:- Federal Family Education Loans (FFEL)(subsidized and unsubsidized)
- William D. Ford Federal Direct (subsidized and unsubsidized)
- Federal Perkins and National Direct
- Health Professions Veterinary Medicine Loans
- Health Professions Loans for Disadvantaged Students
- Nursing Loans
Consolidation generally allows you to make a lower monthly payment and to extend your repayment period. HOWEVER, the longer you extend your repayment period, the more interest you will pay over the life of your loan. You could also lose some possible deferments by consolidating.
Most loans must be in current status with your current loan holder in order to be eligible for consolidation. If you have a loan in default status, you must make satisfactory repayment arrangements with the current loan holder in order for the defaulted loan to be considered for consolidation.
How is the Interest Rate Computed?
If you consolidate, your loans will have a “fixed” interest rate. “Fixed” means that your interest rate will not change over the life of your loan. Perkins, University, Health Profession, and Nursing Loans already have a “fixed” interest rate. William D. Ford Federal Direct and FFEL loans have variable interest rates.
Under consolidation, the interest rate is determined using the weighted average of the interest rates of the loans being consolidated rounded to the next higher 1/8 percent.
Example:
| Loan Type | Balance | Rate |
| Subsidized Direct | $34,000 | 2.82% |
| Unsubsidized Direct | $40,000 | 2.82% |
| Perkins | $14,000 | 5.00% |
Weighted Average Rate: 3.166% Consolidation Rate: 3.25%
This is an example of how the interest rate on a consolidation loan is calculated. In this example, the total being consolidated is $88,000. Of that, $74,000 is at 2.82% interest and $14,000 is at 5% interest. Using the weighted average, the interest rate comes to 3.166%, rounded to 3.25%.
Advantages
- One monthly payment to one servicer.
- Lower monthly payment due to the longer repayment term.
- Fixed interest rate (is an advantage only when interest rates are increasing).
Disadvantages
- More interest paid over the term of the loan if the term is extended.
- Possible loss of some deferments and/or cancellations. If you have a Perkins loan, please review all of the cancellations and deferments available. If there is one that is even a slight possibility, do not consolidate the Perkins loan with the rest of your loans. Once a loan is consolidated, you lose the deferments and cancellations unique to that loan.