Federal Loan Consolidation is accessible under the Federal Family Education Loan (FFEL) program which is approved by the federal government. Federal Loan Consolidation is aimed at helping individuals with high monthly student loan payments. With Federal Loan Consolidation, you can consolidate all or part of your outstanding education loans, even if your loans are presently held by more two or more lenders and different loan types. Federal Loan Consolidation creates a single, new loan with one monthly payment
The Best Time to Consolidate Your Federal Student Loans
While federal consolidation loans have no application deadlines, there are considerations to make when deciding on when to consolidate. To be eligible for a Federal Consolidation Loan under the Federal Family Education Loan program (FFEL), you must be in the grace period or already repaying each loan you decide to consolidate. Repayment includes loans that are in forbearance or deferment. Immediately the grace period or an approved period of deferment has ended on your federal student loans, the higher in-repayment interest rate will be used to calculate your weighted average fixed rate. So, your fixed interest rate for the Federal Consolidation Loan is higher if you consolidate after your grace period or approved deferment.
Is a Credit Check Done Before I am Approved for a Federal Consolidation Loan?
No credit check is needed to obtain a Federal Consolidation Loan. However, you must not have defaulted on a Federal Student Loan.
Eligibility for Federal Loan Consolidation
· Auxiliary Loan to Assist Students (ALAS)
· Federal Direct Loans
· Federal Perkins Loans
· Federal Insured Student Loan (FISL)
· Federal PLUS Loans (if you are the borrower)
· Federal Stafford Loans (subsidized and unsubsidized)
· Federal Supplemental Loans for Students (SLS)
· Loans for Disadvantaged Students (LDS)
· National Direct Student Loans (NDSL)
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Non-Eligibility for Federal Loan Consolidation
Non-federal loans like private loans, school-based loans or family loans are not eligible for consolidation under the Federal Consolidation Loan program.
Private Loans
Private loan repayment options are available through private lenders sometimes, but they may not include the same benefits as the Federal Loan Consolidation program. To know more, contact your private loan lender.
Interest Rate Calculation
The fixed interest rate for your Federal Consolidation loan is computed based on the weighted average of the interest rates of your consolidated loans rounded up to the nearest 1/8th percent and capped at 8.25%. Students should contact their lenders for their current interest rate information.
Benefits of Federal Loan Consolidation
- A single and lower monthly payment
- Consolidate undergraduate and graduate federal loans
- Convenience - easier to manage one loan versus loans with multiple lenders
- Deferment and forbearance options
- Easy on-line application process
- Eligible for the federal interest deduction for education loans (assuming students meet the IRS income eligibility requirement)
- Extended repayment periods
- Lender repayment incentives
- More disposable income each month due to a lower monthly payment
- No pre-payment penalty
- No loan fees
A reduction in the monthly payment and an extension of repayment terms may up the total interest charged on the loan. If borrowers consolidate during the grace period, they will lose any grace period that would have remained had they not consolidated their loan. An increase in federal loan interest rates may increase consolidating low interest rate loans may increase overall repayment costs, and the borrower may be locked into a higher interest rate.
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