Federal Loan Consolidation

Before You Consolidate, Know Your Federal Loan Debt

To access all of your federal student loan history, you can go to www.nslds.ed.gov. You will need your social security number and federal PIN to access your loan information. This history will not include any private educational loans that you have taken out. Compare your current federal loan interest rates, deferment options and repayment incentives with those of a Federal Direct Consolidation loan to see if consolidation is the best option for you.

Federal direct loan consolidation

Federal Direct loan consolidation allows you to combine your eligible outstanding federal student loans into one loan with one monthly payment. Your consolidated loan will have a fixed interest rate that is set at the weighted average of the interest rates of the underlying loans. Keep in mind that you cannot consolidate private educational loans with your federal loans. However, any federal education loan can be consolidated.

Repayment Plan Options:

Standard - The standard repayment plan allows borrowers to pay a fixed amount each month until their loans are paid in full. Borrowers who choose this option will have a payment of at least $50 and will have up to 10 years to repay their loans.

Graduated - The graduated repayment plan allows borrowers to have their payments start out low and increase every two years. The length of the repayment period will be up to ten years. This repayment plan may be best to individuals who expect their income to increase in the next couple of years. A borrower's payment will not be less than the interest that accrues between payments.

Extended Repayments - For the Extended Repayment Plan borrowers must have more than $30,000 in Direct Loan debt and they must not have an outstanding balance on a Direct Loan as of October 7, 1998. Borrowers will have 25 years for repayment and two payment options under this plan: fixed or graduated.

  • Fixed payments are the same amount each month.
  • Graduated payments start low and increase every two years.

Remember that the longer loans are in repayment, the more interest will be paid.

Income Contingent Repayment - With the Income Contingent Repayment Plan the borrowers monthly payments will be calculated on the basis of their adjusted gross income (AGI, plus spouse's income if borrower is married), family size, and the total amount of their Direct Loans. The maximum repayment period is 25 years. Under the ICR plan the borrower will pay each month the lesser of:

  1. the amount the borrower would pay if he/she repaid their loan in 12 years multiplied by an income percentage factor that varies with their annual income, or
  2. 20% of their monthly discretionary income.

If the borrower hasn't fully repaid their loans after 25 years under this plan, the unpaid portion will be discharged.

Income Based Repayment - With the Income Based Repayment Plan the required monthly payment will be based on the borrower's income during any period when he/she has a partial financial hardship. The maximum repayment period under this plan may exceed 10 years. If the borrower meets certain requirements over a specified period of time, he/she may qualify for cancellation of any outstanding balance of their loans.

A Few Direct Loan Consolidation Benefits

  • Income Based Repayment (IBR) Plan is only offered through Direct Lending Program
  • Borrowers who will work full time in public service, may be able to benefit from the Public Service Loan Forgiveness Program, only offered through Direct Lending.
  • Consolidation can allow for borrowers to enter repayment plans that offer extended repayment periods to help lower monthly payments.
  • Consolidation allows borrowers to combine all their federal loans and pay one lender and have one monthly payment.

A Few Direct Loan Consolidation Disadvantages

  • Consolidated Federal Parent PLUS Loans do not qualify for Income Based Repayment Plan or Public Service Loan Forgiveness.
  • If the loans the borrower consolidates are repaid over a longer term, the amount of interest will be greater.
  • The interest rate reductions and other benefits offered with the borrowers original Federal Stafford and/or Plus Loan may not be as favorable.