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What is a Federal Consolidation Loan?
A Consolidation Loan is designed to help student
and parent borrowers simplify loan repayment by allowing the
borrower to combine several types of federal student loans
with various repayment schedules into one loan.
If you have more than one loan, a Consolidation Loan simplifies
the repayment process because you make only one payment a
month. Also, the interest rate on the Consolidation Loan might
be lower than what you're currently paying on one or more
of your loans. And if you're in default on a federal student
loan, you might be eligible for a Consolidation Loan if certain
conditions are met.
What is the interest rate for Consolidation Loans?
As of February 1, 1999 the interest rate for Consolidation
Loans became a fixed rate for the entire time you are repaying
the loan. The fixed rate is based on the weighted average
of the interest rates on the loans being consolidated, rounded
up to the nearest one-eighth of a percent. By law, the interest
rate will never exceed 8.25 percent.
Prior to February 1, 1999 Consolidation Loans had variable
interest rates. For information on interest rates for Consolidation
Loans made prior to February 1, 1999, check with your lender.
Who is eligible for a Consolidation Loan?
You can get a Consolidation Loan during your grace
period, once you have entered repayment, or during periods
of deferment or forbearance.
If you're in default on a federal student loan, you might
be able to receive a Consolidation Loan provided the defaulted
loan is not subject to a judgment or wage garnishment. For
more information, contact a lender that participates in the
Consolidation Loan Program.
What kinds of loans can be consolidated under a Consolidation
Loan?
All federal loans are
eligible for consolidation. A participating lender can give
you a complete listing of eligible loans.
You will receive either a Subsidized and/or an Unsubsidized
Consolidation Loan, depending on the types of loans you are
consolidating.
How do I pay back my Consolidation Loan?
All the repayment plans are available to borrowers
of Consolidation Loans through the lender.
How can I get a Consolidation Loan?
You'll be given more information about Consolidation
Loans during entrance and exit counseling sessions at your
school. You may also contact the consolidation department
of a participating lender for an application or more information.
If the same holder holds all of the loans you want to consolidate,
you must obtain your consolidation loan from that holder,
unless you have been unable to secure a loan with income-sensitive
repayment terms.
Note that a lender may not refuse to consolidate your loans
because of:
- the number or type of loans you want to consolidate.
- the type of school you attended.
- the interest rate you would be charged on a consolidation
loan.
- the types of repayment schedules available to you.
How do I select a Consolidation Lender?
For information on Federal student loan consolidation lender choices, visit www.finaid.org/loans/consolidation.phtml.
How do I apply?
Each consolidation lender may have different application procedures. For more information about the Federal Direct Consolidation Loan, visit loanconsolidation.ed.gov/appentry/appindex.html.
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