Pros of Consolidating Your Federal Student LoansIf you do have older federal student loans with a variable interest rate, and the current rates are low, consolidation may still be a good option for you. The interest rates on a consolidation loan are the weighted average of the rates of the underlying loans rounded up to the nearest 1/8 of a per cent. If you have fixed rate loans, consolidation will not help you interest rate wise. In fact, you end up with a slightly higher rate as explained above. Show
Consolidation can put all of your federal student loans in one place. These days, the Department of Education does a pretty good job ensuring that all of a borrowers student loans are handled by one servicer already, so for most people, there isn’t a need to do this. Payment options including automatic payments also make managing loans are multiple places easier. There are some situations however, where consolidation is a very good idea. If you have Federal Family Education Loan program, or Perkins loans, consolidation can help make those loans eligible for Public Service Loan Forgiveness. If you have Parent Plus loans, consolidation will make those loans eligible for the income contingent repayment plan. Consolidation is also one way of getting your federal loans out of default. Consolidation can also lower your monthly payments by extending the term of the loan. This can be useful if your income does not make the income driven plans affordable for you. You can find out what your payment will be under consolidation and the other repayment plans by using this calculator we like. Drawbacks of Consolidating Your Federal Student LoansConsolidation pays off your underlying loans and creates one new loan. This means that any progress you have made towards forgiveness under an income driven repayment plan or Public Service Loan Forgiveness does not carry over to the new consolidation loan. You will start at zero payments made for the purposes of those forgiveness programs. Consolidation can make you ineligible for certain benefits your underlying loans are qualified for. Perkins loan cancellation eligibility is lost by consolidating these loans. Access to the income sensitive repayment option under the Federal Family Education Loan program is also lost by consolidating these loans into the Direct Loan program. As previously stated, consolidation calculates the interest rate by taking the weighted average of the underlying loans and rounding up to the nearest 1/8 of a per cent. This means that consolidation can cost you more due to this slightly higher overall interest rate. Consolidation can also cost you more by extending the term of the loan. The longer you take to repay the loan in full, the more you will pay in interest. One last warning about consolidation. Many borrowers consolidate their loans and pursue Public Service Loan Forgiveness, which is not necessary if you already have federal Direct Loans. The standard repayment plan that you are placed on if you don’t choose something else is often mistakenly assumed to be an eligible plan for Public Service Loan Forgiveness purposes. Only payments made under an income driven repayment plan, or a ten year standard plan count for PSLF purposes. You can read the full eligibility rules for PSLF here. How to Consolidate Federal Student LoansYou can consolidate your federal student loans at www.studentloans.gov. There is no fee to do this. On the application, you can choose to consolidate all loans, or fill in the loans you do not want to consolidate on the “Do Not Consolidate” page. You will also be prompted to choose a repayment plan and will have the option to choose which loan servicer if you have a preference. The process generally takes up to 60 days. You are required to continue to make your payments during this process. The following loans are eligible for federal Direct Loan consolidation. With some exceptions, you may only consolidate once.
In general, you can only consolidate your loans once. Exceptions to this rule include:
The term of your Direct Loan consolidation will be as follows:
There is no pre-payment penalty for paying these, or any other federal loans, off early.
Double Consolidation Method for Parent Plus BorrowersParent PLUS loans in and of themselves are not eligible for any of the income driven repayment plans. They can be made eligible for the income contingent repayment plan (ICR) only by consolidating the Parent Plus. There is a loophole however, that will allow Parent Plus loans to be eligible for the other, often lower cost, income driven plans. We call this the “double super secret consolidation method.” It can be a little confusing, so bear with us. Essentially what you need to do is consolidate each Parent Plus loan twice. Think of consolidation as say a semi-transparent screen. If you put one screen over the Parent Plus loan you can still see it, but if you put two over it you can’t. This will only work if you have at least two separate outstanding loans. An existing consolidation is only one loan even though they book it in two parts on your account. Example: Say you have four Parent Plus loans. We will call them loans 1, 2, 3 and 4. Step One: Consolidate loans 1 and 2 only. Now you have one consolidation loan and loans 3 and 4 Step Two: Consolidate loans 3 and 4 only. You can start this process only after step one is completed and loans 1 and 2 show a zero balance. Be sure to create a new consolidation for loans 3 and 4, not an “add on” to the existing consolidation. If you try to consolidate within 180 days of another consolidation they will often steer or even require the add on to the existing consolidation. You do NOT want to do this – you want to end up with two separate consolidation loans. If the system wont’ let you do a separate consolidation, only an add on, wait the 180 days to attempt the second consolidation. Now you should show no Parent Plus, just two consolidation loans that we will call consolidation loans A and B. Step Three: Consolidate the two consolidation loans A and B together. Again, do not do the add on process and do not start this third consolidation until the first two are completed. You should now have one consolidation loan and that’s it. At this point you have successfully completed the double consolidation of the Parent Plus and this final consolidation should be eligible for the REPAYE and IBR repayment plans if you are otherwise eligible. Possible the PAYE plan as well depending on when your original loans were taken out. Warning: Consolidation will often reset any forgiveness counts such as for PSLF or IDR forgiveness unless done under one of the temporary waivers offered between the 2021-2023 COVID period. Is it a good idea to consolidate federal student loans?If you currently have federal student loans that are with different loan servicers, consolidation can greatly simplify loan repayment by giving you a single loan with just one monthly bill. There are a couple of other pros: Consolidation can lower your monthly payment by giving you up to 30 years to repay your loans.
Does federal student loan consolidation affect credit score?Because there's no credit check required, federal loan consolidation doesn't affect your credit score. Keep in mind, though, that there's no way to get a lower interest rate through the federal consolidation program.
Can my student loans be forgiven if I consolidate?If you consolidate loans other than Direct Loans, consolidation may give you access to forgiveness options, such as income-driven repayment or Public Service Loan Forgiveness (PSLF). If you consolidate, you'll be able to switch any variable-rate loans you have to a fixed interest rate.
Should I bundle my student loans?You should only consolidate your student loans if: It won't cost you anything to consolidate them. You can get a fixed interest rate instead of a variable rate. Your new net interest rate is lower than your current net interest rate.
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Should i consolidate my student loans with the federal government
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