Know the benefits and considerations of combining multiple loans into one.
If you borrow a number of student loans while you’re in school, you might have trouble keeping up with all the payments when it comes time to start paying back your loans. Consolidating your loans might help.
Under the Federal Direct Loan Program, a Direct Consolidation loan lets you combine loans you obtained from one or more lenders, and/or several different federal programs, into one new loan.
Before deciding to consolidate your loans, get the information you need and consider your particular situation. After weighing the benefits of loan consolidation, as well as important considerations, you can make an informed decision about whether or not it is the right repayment option for you.
Understand the timing of when you can consolidate.
You can consolidate while you are in your grace period (the six months after you leave school before you start making payments), or in repayment (including during periods of deferment or forbearance).
- Benefit — You may receive a lower Direct Consolidation loan interest rate if you are consolidating variable-rate Federal Direct loans (disbursed before July 1, 2006) while you are in your grace period or in a period of deferment.
- Consideration — No matter what loans you are consolidating, if you consolidate while you are still in your grace period , you forfeit any remaining grace period and have to begin making payments on your Direct Consolidation loan within 60 days.
When it is advantageous for you to do so, try to consolidate toward the end of your grace period. Talk to the Direct Loan Servicing Center about the timing that works best for you.
By consolidating your federal education loans, you can extend your repayment period from 10 to up to 30 years.
Depending on your total education loan debt, you may be eligible for a repayment period of up to 30 years on your Direct Consolidation loan
- Benefit — Paying your debt over a longer period of time means lower monthly payments. If you are unable to make your scheduled monthly payment on your current loans, this may be a good option for you.
- Consideration — Extending the repayment term means you’ll pay more interest over the life of your Direct Consolidation loan. So you’ll actually wind up paying more for your loan in the long run. See examples that illustrate the cost of consolidation.
If you consolidate your loans, the best strategy is to request the shortest repayment period that you are allowed and can afford. This will enable you to pay off your loan more quickly and save more interest. And remember, there is no penalty for making prepayments on your Direct Consolidation loan.
Consolidation gives you one payment with one lender.
The Department of Education (ED) will be the only lender of your federal student loans.
- Benefit— If you consolidate all of your student loans, you will make your monthly payment to only one lender - less paperwork, less hassle.
- Consideration — You may give up some benefits that your lender currently provides on your loans (i.e., interest rate reduction, auto debit incentive, etc.).