Loan Consolidation Information

A consolidation loan allows students to combine their federal student loans into one single loan, hence one monthly payment. The payment can be significantly lower since the repayment term will be longer. A student may apply for a Direct Loan Consolidation by contacting either the Department of Education (800-557-7392) or a private lender. Once the application has been received, the lender will verify the outstanding balances from loans that the student has requested to be consolidated. They will then send out information regarding the successful completion of the consolidation, the interest rate, amount owed, etc.

The interest rate for the loan will be based on the weighted average of the interest rates on the loans to be consolidated.

Keep in mind that consolidation is your individual choice. It is your responsibility as the loan borrower to research and understand the rights and responsibilities of the loan you will be taking on.

As of July 1, 2006, Direct loan interest rates are fixed instead of variable. CONSOLIDATION interest is now VARIABLE instead of fixed.

Sample questions to ask the Loan Consolidation Servicer of your choice to help you decide if consolidation and the lender are right for you:

How does consolidation benefit me?
If I go back to school, can I get a student deferment?
Can I consolidate just one loan? What benefits will I lose if I consolidate?
What will happen to any additional loans that I receive after I consolidate?
If I earn interest rate reductions (rebates), will they be transferred to a new lender if my loan gets sold?
What would be my consolidation interest rate? Can I refinance if I get more loans?
What additional interest rate reduction incentives do you offer?
Are there any costs or fees to consolidate with this particular consolidation servicer?
Will consolidation keep me from getting additional financial aid?
How long will it take to process my consolidation paperwork? When should I turn in my consolidation application?
Will I be penalized for paying off early or making more than the minimum payment?

Consolidation can be done through the Department of Education OR a private lending institution. The University does NOT endorse any particular consolidator, it is the borrower's responsibility to determine which is best for them. By using the online calculator that is available at most consolidator's websites, you can determine which one may offer the lowest interest rate. Remember that by consolidating you may lose some of the rights of your old loans, so ask which ones would no longer be applicable. Asking the sample questions listed above may also prove to be a valuable aid.

Direct Loan Consolidation Center
For information about loan consolidation through the Department of Education, please visit the Federal Direct Consolidation Loan website or 1-800-557-7392.

You can use the interactive loan calculator on the above website to find out how much your monthly loan consolidation payments will be. Use the calculator with and without your Federal Perkins Loans to determine if your monthly payment will be reduced and which option would be more cost effective. Please note that if you consolidate your Federal loans, you will lose any cancellation benefits (i.e., Teacher, Volunteer, Law Enforcement forgiveness benefits) that may apply for certain occupations.

Once you have successfully consolidated your educational loans and locked in a fixed lower interest rate, you have a 180-day window to include additional loans in your consolidation package.

Completing a request to consolidate loans does not commit you to going through with the consolidation. The Direct Loan Servicer will send you a final consolidation promissory note that requires your signature. It is important that you review your loan consolidation paperwork carefully to be sure all of your loans are included. The consolidation process isn't final until you complete, sign and return this paperwork.

You may wish to research other consolidation programs to compare with the Direct Loan Consolidation program.

Please note that although consolidating your loans can simply your life by lowering your monthly payments, it can also significantly increase the total amount paid back due to longer repayment term. Once you have consolidated, it cannot be undone since the new lender will have paid off your prior loan balances to start repayment with them.

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