Federal Loan Consolidation
A federal consolidation loan allows you to combine several types of federal student loans into a single loan with one monthly payment and a fixed interest rate. It is often referred to as "refinancing" because all prior loans are paid off and a new loan with new terms and conditions is created.
To learn more about federal student loan consolidation, St. Thomas recommends visiting studentaid.gov. If you have questions about your federal education loans before you apply, contact the Loan Consolidation Information Call Center at 1-800-557-7392.
For your convenience the Financial Aid Office has provided some general information and facts on the federal loan consolidation process below.
Consolidation Pros: reasons to consolidate
- A single and lower monthly payment
- Easier to manage one loan vs. loans with multiple holders
- No prepayment penalty
- No fees to consolidate
- Extended repayment periods
- Fixed interest rate
Consolidation Cons: reasons to consider before consolidating
- Prolong the life of the loan
- Pay more interest over extended repayment period
- Possible elimination of some deferment options
- Possible elimination of loan cancellation/forgiveness options
- Loss of grace period
Federal Loans eligible for loan consolidation
- Federal Stafford Loans (subsidized and unsubsidized)
- Federal Direct Loans (subsidized and unsubsidized)
- Federal PLUS Loans (if you are the borrower)
- Federal Insured Student Loan (FISL)
- Auxiliary Loan to Assist Students (ALAS)
- Federal Supplemental Loans for Students (SLS)
- National Direct Student Loans (NDSL)
- Loans for Disadvantaged Students (LDS)
You must have at least one Direct or Federal Family Education Loan Program (FFELP) loan that is in grace, repayment, forbearance or default status. Students cannot consolidate while they are still enrolled in school at least half-time*. Students cannot consolidate private educational loans into their Federal Direct Consolidation Loan.
Yes. You can consolidate your loans under the Direct Loan Program and combine all of your outstanding federal loans into a new combined loan. This consolidated loan will have new terms, such as the interest rate and length of repayment, but will also retain some of the benefits you had under the other loans, such as deferment of payment if you pursue additional education. With a Federal Direct Consolidation Loan, you have one loan with one payment per month. You may end up paying more interest than you would under the terms of your individual loans, so you do have to consider the cost of the consolidation loan versus the convenience of the single payment. However, as with all federal loan programs, there is no penalty for pre-payment, so you can always reduce the total accrued interest by paying more than the minimum monthly payment.
Yes. You may consolidate through the Direct Loan Program if you have more than one loan from a single lender. However, before you look at a consolidation loan you should consider why you would want to consolidate your loans. If you are seeking a lower monthly payment or a longer repayment term, those options may be available to you under the terms of your current federal loans. Contact your loan servicer to inquire about repayment options before deciding to consolidate your federal loans.
You can get a Federal Direct Consolidation Loan during your grace period, once you've entered repayment, or during periods of deferment or forbearance. The in school consolidation process was repealed, effective July 1, 2006*. You should discuss your decision about when to consolidate with your lender/servicer.
What if my federal loan holder is a private bank? Can I still consolidate through the Federal Direct Loan Program?
Yes, you can consolidate your loans through the Federal Direct Loan Program.
If I am applying for a Federal Direct Consolidation Loan, do I have to keep making payments on my current loans?
Until you receive notification that the consolidator has paid off your original loans, continue making payments on those loans. You don't want to go into default on those loans, since that would prevent your consolidation loan application from moving forward. Any payments you make to a current loan holder after the loan has been paid in full by consolidation will be forwarded to your consolidation lender.
Yes, so long as the loans being consolidated is not itself a consolidation loan. To reconsolidate a consolidation loan, you must be including additional loans. Otherwise, you can consolidate even just a single loan.
Consolidation loans may only be reconsolidated when you are adding more loans to the consolidation. If you do not have other federal education loans to include in the new consolidation loan, you cannot reconsolidate a consolidation loan.
The interest rate on a consolidation loan is the weighted average of the interest rates on the loans being consolidated, rounded up to the nearest 1/8 of a percent. There is no cap on the interest rate for a federal Direct Consolidation Loan.
The best place to check on your loan borrowing is the National Student Loan Database System (NSLDS). You may access your borrowing history online at the National Student Loan Database web site at www.nslds.ed.gov. To access your information, you’ll need your FSA ID. If you do not have a FSA ID, you will be prompted to create one.