Student Loan Consolidation

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Federal student loan consolidation is an additional financial option for you once you've graduated from college.

The process of consolidating student loans is very often compared to home refinancing, which is not entirely accurate. Generally, in a home refinance, you have one house and you renegotiate terms on that house's mortgage. With student loan consolidation, it's more like you own several small shacks and nail them and their mortgages together into one larger house.

How Federal Student Loan Consolidation Works

Consolidation is a lengthy process. Here's the five minute quick tour.

1. You complete an application for consolidation online .
2. Your application is checked for eligibility & accuracy and then submitted to our underwriters.
3. Our underwriters obtain payoff statements called LVCs (loan verification certificates) from your existing lenders.
4. Our underwriters then buy out your loans from your existing lenders.
5. Then, a new loan is issued in your name.
6. You receive the paperwork and begin making payments on your new loan.

Consolidation can take anywhere from 30 to 60 days; in rare cases it may take longer (if, for example, you had 30 or 40 loans).

You might also consider Private Student Loan Consolidation if you have a large number of private (alternative) student loans to consolidate. The benefit is primarily reducing the number of payments you have each month - combining multiple payments into one.

When To Consolidate

The very best time to consolidate your student loans is immediately after graduating, before your grace period ends. Doing so allows you to lock in the lowest possible interest rate on your loans.

Consolidating is a great option whenever you want to increase your monthly cash flow - by consolidating, you extend your repayment term, which therefore reduces the monthly payment you make.

Consolidating now - before the 2004 interest rates take effect - is a great time, because interest rates are at a thirty year low.

Ready to apply? Click here to consolidate your federal student loans >>

When Not To Consolidate

Consolidation is a poor choice if you are concerned mainly about the total amount of interest you will pay, and you do not mind higher monthly payments.

Consolidation is also a poor choice if you are in the last 25% of your loan term - by now, you've paid off most of your loan, and consolidating would simply extend how much longer you would pay.

Who is eligible to consolidate?

Consolidation generally has three conditions:

• You must no longer be enrolled half time or greater in school, which includes:
  • Left school
  • Part time
  • Graduated
• You must not be in default
  • Click here for default consolidation
• You must have at least $10,000 total in student loans

If you meet these conditions, you are pre-qualified for consolidation. Ready to apply? Click here to consolidate your federal student loans >>

Can you consolidate again?

Only under certain very specific conditions:

• If you have new loans that have not been consolidated yet, you can add them to an existing consolidation - for example, new graduate loans and an existing undergraduate consolidation
• If you have two previous consolidations with different companies on different dates

Are there any fees?

No.

Are there any credit checks?

No.

Are there any early payment/repayment fees or penalties?

Heck no. The government wants its money back. To make extra payments, consolidate now, and then when your payment schedule begins, simply specify "Extra payment to principal" on your early payments.

How do I qualify for the 1.625% advertised?

You need to have:

• Only Stafford Loans in your grace period
• Make 48 consecutive on-time payments

The 1.625% is based on a 2.77% Stafford Loan rate, which rounds up to 2.875%. Take advantage of both discounts (0.25% off for automatic checking account withdrawal and 1% after 4 years of successive on-time payments) and at the end of 4 years, your effective rate will be 1.625%.

How do the discounts work?

Discounts remove time off your loan. Your monthly payment does not change, but the overall time you pay does. For loans over $20,000, if you take advantage of both discounts, on average you will save:

• Almost 3 years on a 20 year loan
• Almost 4 years on a 25 year loan
• Almost 5 years on a 30 year loan

Ready to apply? Click here to consolidate your federal student loans >>

What about private loan consolidation?

It's not a bad idea to consolidate your private student loans. What is a bad idea is combining federal and private student loans, which results in a consolidated private loan. This is bad for five reasons:

1. You cannot defer payments on a private loan consolidation if you want to go back to school. You can with federal loan consolidation.
2. You cannot forbear payments in case of economic hardship on a private loan consolidation.
3. You cannot claim interest as a tax deduction on a private loan consolidation.
4. You cannot apply for forgiveness on a private loan consolidation. Certain types of work, such as federal volunteer programs, teaching in economic development zones, and military service, among others, can qualify you to have part or all of your federal loans dismissed by the government.
5. If you should pass away, private loans are passed to your next of kin . Federal loans are forgiven.

What about consolidating with my spouse?

Unfortunately, consolidating federal loans with your spouse is no longer allowed.

Ready to apply? Click here to consolidate your federal student loans >>

Can consolidated student loans be sold?

Yes, under certain circumstances. The most common reason for a loan to be sold is if the borrower defaults on the loan or shows significant, recurring delinquency on payments. Most lenders prefer NOT to sell their loans because loans are a source of revenue; only when a loan performs badly (usually due to the borrower not paying or not paying promptly) would a loan be sold.