FAQs
How does Federal Consolidation work?
The Federal Consolidation program takes all of your eligible Federal Student Loans and combines them into one loan with a fixed interest rate and a lower monthly payment. Once you send your signed and dated application back to our processing center, we will begin processing your loans. We will send loan verification certificates to your current loan holders to verify the current interest rate, status, and payoff amount on your loan. Once the loan holder sends back this information to our processing center and there are no discrepancies, your loan will be completed. Your new lender will send the payoff amount to your current loan holders and those loans will be “paid off” and your new consolidation loan will begin. This entire process takes anywhere from 6 to 8 weeks. Continue making payments on your current loans until you receive your information packet in the mail.
Do I lose my Deferment and Forbearance rights when I consolidate?
No, Deferment and Forbearance rights are available with a Federal Consolidation, you would need to contact the servicer of your consolidation loan (once it is completed) to apply for a Deferment or Forbearance.
What if I leave a loan out of my consolidation?
You have 180 days after your loans have been consolidated to include any additional Federal loans.
How is my new interest rate determined on the consolidation loan?
Interest rates on Federal Student Consolidation Loans are determined by the weighted average of your current interest rates rounded up to the nearest 1/8%.
What if I am in my Grace Period?
If you are currently in a “Grace” period status, now is the best time for you to consolidate. You are receiving a discount on your interest rate while you are in “Grace”, once you begin repayment on your loans the discount will expire. Consolidating now will allow you to lock in on that lower “Grace” rate while still giving you an opportunity to not begin repayment until your grace period expires.
Can I change my repayment plan?
Yes, you can change your repayment plan once a year without any penalties. This will allow you to adjust your consolidation loan to fit your current financial status.
Can I pre-pay my consolidation loan?
Yes, you may send as much as you would like each month to your new consolidation loan. There are no pre-payment penalties with this loan, therefore you may pay it off as quickly as you would like
When is the best time to apply for a Federal Consolidation Loan?
The best time to consolidate varies depending on each borrower’s situation and loan type. Here are several things to keep in mind:
Stafford loans and Stafford Direct loans (loans taken out directly from the Department of Education) have lower interest rates while you are still in school. Those lower in-school interest rates also apply during the grace period (the first six months after you graduate or drop below half-time enrollment) and during periods of loan deferment. If you consolidate your Stafford or Direct loans while in the grace period or during deferment, the lower in-school interest rate will be used for purposes of calculating the fixed interest rate for your consolidation loan. So the grace period and deferment could be a good time to consolidate. However, consolidating your loans will end the grace period or deferment period, so if you’re not ready to start repayment, you might want to wait to consolidate until you are ready.
You should try to consolidate your loans when interest rates are low. Student loan interest rates are based on federal interest rates that go up and down depending on complex economic factors. If you consolidate during a period of low interest rates, you will have a lower fixed rate and could save a significant amount of money over the long run.
Another way to try to get a lower interest rate is to wait to consolidate your loans until April or May. Interest rates change on July 1st, and it’s sometimes possible to make an educated guess in April or May as to whether interest rates for the next year will rise or fall. If you think they’re going to rise, you should consolidate right away, being sure to leave enough time for your loan to be processed before July 1st. If you think interest rates are going to drop, you could wait until July and take a chance with the new rates.
What is the grace period discount?
There is an additional discount of up to 0.625% for recent graduates interested in consolidating their Stafford loans. Be sure that you have completed your consolidation process before the end of the 6-month grace period; you could save even more on your fixed interest rate. This is because your consolidation interest rate is based on a weighted average of the underlying loans and the interest rate on a Stafford loan is lower during grace period. This discount does not apply to other eligible consolidation loans such as PLUS and Perkins loans. Loans that are consolidated during full repayment, including Stafford loans, will not be eligible for the discount.
Can my spouse and I consolidate our loans together?
Yes, you can. The two of you can consolidate all of your eligible loans together to form one new loan. Once you do so, you will both be responsible for the new loan, even in the event of divorce. Also, if you ever wish to defer or forbear your consolidated loan, both you and your spouse will need to be eligible for the requested deferment or forbearance. If one party becomes disabled or dies, their portion of the consolidation loan may be discharged.