Your Guide to Art School Resources and Information

Student Loan Consolidation

Student loan consolidation is the combining of several student loans into a single loan, held by a single lender. The consolidation loan pays off the balance of the original loan, simplifying loan management and repayment for the borrower. Both student and parent loans can be consolidated. There are benefits to consolidating, depending on your loan situation, including interest rate reduction discounts.

Why student loan consolidation can be helpful

  • A consolidated loan resets your deferment and forbearance options. If you've reached the limit on deferring payment on your loans, consolidating can 'reset the clock' on deferred repayment options. Because a consolidated loan is a new loan, the deferment and forbearance options will be available.
  • If you have multiple loans, you have to make multiple payments each month. This is even more of a hassle if you have different lenders. Student loan consolidation combines your loans into one, therefore requiring only a single payment each month.
  • Change from variable interest rates to fixed interest rates. For example, the U.S. Department of Education Direct Consolidation Loan has a fixed interest rate over the life of the loan. The rate is based on the weighted average interest rate of the loans being consolidated, rounded to the next nearest higher one-eighth of one percent and can not exceed 8.25 percent*.
  • Several consolidation loan discounts are available as interest rate reductions (of between 0.25% and 1%). These discounts include: direct debit payment discounts (0.25% - 0.50%), and on-time payment discounts (up to 1% after 36 mos). These discounts can be taken into consideration when selecting a student loan consolidation lender. It should be noted that these discounts can be revoked at any time, and one late payment will end the on-time payment discount.
  • Consolidation loans allow you to extend repayment over a longer period of time. It’s a new loan, the loan term is new. This allows your monthly payments to be lower, without changing or extending an existing loan term.
  • There are no fees to consolidate.

What Loans can be consolidated?

Any federal education loan can be consolidated. You can even consolidate a single loan. There are, however, a few restrictions on consolidating a consolidation loan.

According to the US Department of Education, the following federal education loans are eligible for consolidation:

Subsidized Loans:

  • Subsidized Federal Stafford Loans
  • Direct Subsidized Loans
  • Subsidized Federal Consolidation Loans
  • Direct Subsidized Consolidation Loans
  • Federal Insured Student Loans (FISL)
  • Guaranteed Student Loans (GSL)

Unsubsidized Loans:

  • Unsubsidized and Nonsubsidized Federal Stafford Loans
  • Direct Unsubsidized Loans, including Direct Unsubsidized Loans (TEACH) (converted from TEACH Grants)
  • Unsubsidized Federal Consolidation Loans
  • Direct Unsubsidized Consolidation Loans
  • Federal PLUS Loans (for parents or for graduate and professional students)
  • Direct PLUS Loans (for parents or for graduate and professional students)
  • Direct PLUS Consolidation Loans
  • Federal Perkins Loans
  • National Direct Student Loans (NDSL)
  • National Defense Student Loans (NDSL)
  • Federal Supplemental Loans for Students (SLS)
  • Parent Loans for Undergraduate Students (PLUS)
  • Auxiliary Loans to Assist Students (ALAS)
  • Health Professions Student Loans (HPSL)
  • Health Education Assistance Loans (HEAL)
  • Nursing Student Loans (NSL)
  • Loans for Disadvantaged Students (LDS)

*U.S. Department of Education Borrower Services

Related tags: Student loan consolidation