You have finished your education and now it is time to pay off your loans. You may be receiving student loan statements from several creditors for differing amounts and at varying interest rates. Consolidating your student loans into one larger loan may simplify your repayment, but it also may result in you paying more overall. Before consolidating, analyze the options available and determine if loan consolidation is right for you.


Do determine what kind of student loans you have

You may have federal loans (the federal government is the largest student loan lender) or private loans. Lenders and financial institutions may consolidate public and private student loans. The U.S. Department of Education is the lender for all federal direct consolidation loans.

Do determine if your loans may be consolidated into the Direct Loan program

Most federal loans may be consolidated, including: Direct Subsidized Loans, Direct Plus Loans, Subsidized Federal Stafford Loans, Federal Perkins Loans, Health Education, Assistance Loans, Direct Unsubsidized Loans, Supplemental Loans for Students, PLUS loans from the Federal Family Education Loan Program, Federal Nursing Loans, Loans for Disadvantaged Students, National Defense Student Loans, and some loans that are already consolidations.

The following loans are not eligible for the Direct Loan program: loans made by a private or state lender that are not guaranteed by the federal government, Primary Care Loans, Law Access Loans, Medical Assist Loans, and PLATO Loans.

Do gather your information

Before applying for a consolidation, gather the information necessary for you to make an informed decision. Review all of your current loan statements, quarterly and/or annual interest statements, and payment coupon books if you have them. Then review the application, promissory note, and instruction sheet as well as any addendums for the consolidation program you are considering. Review the repayment plan options to determine the one that best suits your situation and for which you are eligible:

Standard Repayment Plan: You pay a fixed amount each month until paid in full. Payments of at least $50 for up to 10 to 30 years.

Graduated Repayment Plan: Minimum payment amount at least equal to amount of interest accrued monthly. Start out with low payments that increase every two years.

Extended Repayment Plan: For loans over $30,000, you have 25 years to repay on a fixed or graduated schedule.

Income Contingent Repayment Plan (ICR): Monthly payments based on annual income, Direct Loan Balance and family size, and are spread over a term up to 25 years.

Income-Based Repayment Plan (IBR) : Monthly payments based on annual income and family size and spread over a term up to 25 years. You must have a partial financial hardship to be eligible.

Do the math

Determine the amount you have remaining on your current loans, the interest rate, and how much you would repay in total if you continued to make payments at your current interest rate and payment schedule. Then, determine the interest rate and how much you would pay under the consolidation program you are considering. The U.S. Department of Education offers an online calculator to assist you in calculating your consolidated loan payment amounts for federal direct loans. Private lenders can also assist you with the calculations. You may find that consolidation will provide you with lower payments now, but you will pay a larger amount over the life of the loan. Or depending on the terms, you may have lower payments now with little change in the overall amount.

Do determine eligibility for programs that offer student loan forgiveness

If you are working in the public service field, you may be eligible for a government program that offers student loan forgiveness. For example, the Public Service Loan Forgiveness Program was created by Congress in 2007 to encourage individuals to enter and work full time in public service jobs. To qualify, you must not be in default on the loans for which forgiveness is requested, you must be employed full time, in any position, by a public service organization, or serving full-time in an AmeriCorps or Peace Corps position. Public service organizations include a government organization (such as a federal, state, local, or tribal organization, a public child or family service agency), a non-profit, tax-exempt organization under I.R.C. 501(c)(3) (such as a non-profit private school, college or university), or a private, non-profit organization that provides one of the following services: law enforcement, public safety, public interest law services, early childhood education, public services for the elderly or individuals with disabilities, public library services, and other public services.

You must also have made 120 separate monthly payments on your loans. Generally, only borrowers who are making reduced monthly payments through Direct Loan Income Contingent or income based repayment plans have a remaining balance after making 120 payments on the loan. Because of the public service and 120 payment requirements, there is only a limited number of people who are eligible to participate, but this program can be a big savings for the right individual.


Do not default on your student loans

If you fail to make a payment on your student loans on time, you are considered to be delinquent. If you fail to pay for 270 days, your loan will be in default. If you default on your loan, you may face severe consequences. The Department of Education can immediately demand repayment of the total loan amount due, start collection against you, and charge you for collection costs. The default may be reported to national credit bureaus, harming your credit ratings. You will be ineligible for Title IV student aid. The IRS may withhold your Federal income tax returns. Your wages may be garnished.

If your loans are in default, you may not be able to consolidate your loans until you make repayment arrangements on the defaulted loans with your current loan holders. If you default on your loan, you may be liable for collection costs. If you consolidate a defaulted loan, your credit record will continue to show a default status on the loan. In addition, your new loan must be enough to pay off the principal, interests, and collections costs of your defaulted loan.

Do not forget about rehabilitation as an option on a loan in default

If your loan is in default, and you want to clear the notation of default from your credit record, you should contact your current lender about a loan rehabilitation before applying to consolidate your loan. If you rehabilitate your defaulted loan before consolidating it, the lender will update your credit record to show the loan is no longer in default.

To rehabilitate a Direct Loan, you will be required to make at least nine full payments of an agreed amount within twenty days of the monthly due dates over a ten month period. To rehabilitate a Perkins Loan, you will have to make twelve on-time monthly payments. Other rehabilitation terms and conditions may apply. To rehabilitate a private loan, contact your lender about your options.

Do not consolidate a loan that may be cancelled or discharged

In certain limited circumstances, you may be able to have all or part of your federal student loan cancelled. Grounds for cancelling your loans may include: your school closed before you completed your program, your loan was falsely certified due to identity theft, your school forged your signature on your promissory note, your school falsely certified you were eligible for the loan, and you withdrew from school and your school failed to pay a refund it owed you.

In addition, if you are a new borrower and a teacher teaching full-time in a low-income elementary or secondary school or educational service agency for five consecutive years, you be able to have up to $17,500 of your subsidized or unsubsidized loans cancelled. If you have an eligible public service job and have made 120 payments on your Direct Loans, the remaining balance may be forgiven. In some cases, your loan may be cancelled in bankruptcy, but you must prove to the bankruptcy court that repaying the loan would cause you undue hardship. If you are permanently disabled, so that you are unable to engage in any substantial gainful activity because of a medical, physical, or mental impairment that can be expected to result in death or last for a continuous period of 60 months, or if you are unable to be employed because of a service-connected disability as determined by the Secretary of Veteran affairs, your loan may be discharged. A physician must certify the discharge application. If a student dies, a federal loan will be cancelled if a family member or other representative provides a death certificate. These discharge or cancellation grounds may not apply to private loans. For those loans, you will need to review your loan documents.

Do not stop making payments while you are waiting on your consolidation

After you apply for a loan consolidation, it may take 60 to 90 days to process your application. You should continue to make payments to your current lenders until you receive written notification that your loans have been consolidated. If you cannot make your loan payments, contact your current loan holder and ask about options to postpone payment of your loans through deferment or forbearance.

Do not forget to update your lender

One simple way to help avoid default on your student loans is to ensure that you get your billing statement in a timely manner. To do that, it is important that you keep your lender updated on address or name changes. In addition, if you have trouble making your monthly payments, you may apply for forbearance or deferment programs, or change your repayment plan.


3d man jump for joyLoan consolidation may simplify your repayment process, lower your monthly payments, and help you avoid default on your student loans. But before applying for consolidation, review all of your options to determine if consolidation is the best course for you.


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