Repayment Challenges

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Repayment Assistance

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repaymentcounselor@asa.org

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Please note: All times Eastern.

Consolidation

Consolidation loans combine one or more federal student loans into one new loan held by a single lender.

If you are having trouble keeping track of multiple student loan payments, consolidation could help. However, if you are just looking for a lower monthly payment, you may want to consider other repayment options before consolidation.

How It Works

As of July 1, 2010, all new federal consolidation loans will come from the Direct Loan program (DL). That means consolidated Federal Family Education Loan Program (FFELP) loans will become DL loans. If you have both FFELP and DL loans, you can consolidate them together.

  • You must have at least one eligible federal student loan to consolidate.
  • You cannot consolidate private and federal loans together.
  • The U.S. Department of Education (ED) does not require a minimum balance to consolidate your loans.
  • Your new loan will have new terms.
  • Your loan will have a new interest rate, which will be the weighted average of the loans you consolidated rounded up to the nearest 1/8th of a percent (for an example, see below). 
  • After you consolidate, your repayment schedule will be reset to standard repayment. You may then choose a different payment schedule.
  • Based on your total education loan debt (including private loans), you could extend your repayment to a maximum of 30 years.
  • Loan consolidation cannot be reversed.
  • Consolidation loans can be reconsolidated to add additional eligible education loans.
  • Federal Family Education Loan Program borrowers who consolidate into the Direct Loan program will gain access to military benefits and Public Service Loan Forgiveness. 
  • There are no penalties for prepayment or finishing repayment ahead of schedule.
  • You typically cannot consolidate while attending school. You must wait until you have stopped or completed your education program. However, from July 1, 2010, to June 30, 2011, you can consolidate these loans while you are still in school.
    • To qualify, you must have at least 1 loan from 2 of the following sources: DL, FFELP, or ED (via the Loan Purchase Commitment Program).
    • You must also have not yet entered repayment on at least 1 of those loans.
    • Consolidating your loans while in school may cause you to lose your grace period on loans that were not in repayment before you consolidated.
    • Your interest rate will still be the weighted average of the consolidated loans. However, the rate will not be rounded up to the nearest 1/8th of a percent.

Consolidation Pros and Cons

Some benefits of consolidation:

  • Your loans will have a fixed interest rate based on the rates of the underlying loans.
  • You will have one convenient payment per month to one lender, instead of multiple payments to different lenders.
  • Under certain conditions, you can postpone repayment by requesting a deferment or forbearance. Interest will continue accruing on unsubsidized portions of a Consolidation loan during periods of deferment and forbearance.

Some disadvantages of consolidation:

  • Due to the fixed interest rate, you will not benefit if the variable interest rate goes down.
  • You may repay your loans for a longer period of time.
  • You may accrue and pay greater interest over the long term. This greater interest may increase the total balance of your loan, potentially by thousands of dollars.
  • Your weighted interest rate will be rounded up to the nearest 1/8th of a percent (0.125).
  • You may lose some existing benefits on your loans that you choose to consolidate.
  • For older loans, you may lose some deferment options.
  • For Perkins loans, you will lose some forgiveness options and your interest subsidy.
  • If your Consolidation loan includes a Parent PLUS loan, you cannot repay your loan under the income-based repayment plan.

Obtaining a Consolidation Loan

When applying for a Consolidation loan, ensure all of your eligible loans are included by researching your loan history. Getting your federal student loan information is easy with the National Student Loan Data System.

If you have any questions about consolidation, contact American Student Assistance® (ASA). We can help you determine whether consolidation—or a different repayment option—is right for you.

Weighted Averages

Consolidation loan interest rates are calculated by using the process below.

As an example, if you were in repayment on a loan of $5,000 at 6.8% and a loan of $10,000 at 6.0%, your rate would be 6.375%. Here is why:

  • The amount you owe on each loan is multiplied by its respective interest rate (5,000 x 0.068 = 340; 10,000 x 0.06 = 600).
  • These amounts are then added together (340 + 600 = 940).
  • This total is divided by the total amount you owe (940 / 15,000 = 0.063).
  • Multiplied by 100, this number creates your weighted average interest rate (100 x 0.063 = 6.3).
  • Your weighted average is then rounded up to the nearest 1/8% percent (6.3 + 0.075 = 6.375).

Keep in mind that rates are capped at 8.25%.