What is a Federal Consolidation Loan?
Which loans can I consolidate?
When should I consolidate?
What are my repayment options?
What are the advantages to consolidating?
What are the disadvantages to consolidating?
Is there a minimum monthly payment?
Why should you consolidate?
How do I consolidate?

What is a Federal Consolidation Loan?

A consolidation loan is a repayment option which allows you to combine your federal loans into a single loan.  In essence, the borrower takes out a new loan, a Federal Consolidation Loan, to pay existing federally guaranteed loans.  A consolidation loan is available from educational loan lenders and holders.  Once the consolidation loan is issued the lender pays off your outstanding balances on all of your loans that you put into consolidation.  The consolidation loan has a fixed interest rate, based on the weighted average of the interest rates of the loans being consolidated, rounded to the nearest 1/8% or 8.25%, whichever is less.  Now you can calculate the different repayment options that are available with a Federal Consolidation Loan.

When should I consolidate?

You should only consolidate your loans after you have entered your grace period or you are in repayment.  After you receive a Federal Consolidation Loan you immediately enter repayment.

What are my repayment options?

There are four basic repayment types:

1. Level repayment - your monthly payment amount is fixed over the life of the 
    loan.

2. Graduated repayment - your monthly payments start low and gradually 
    increase at specified intervals. 

3. Extended repayment - this plan allows you to repay your Federal 
    Consolidation Loan over a 25-year period under a level or graduated 
    repayment schedule.  To be eligible, your oldest Federal Stafford or Federal   
    Plus loan must have been disbursed on or after October 7, 1998.  In 
    addition, the combined outstanding balance on your eligible loans must be 
    greater than $30,000.

4. Income-sensitive repayment - your monthly payments are based on your 
    earnings and fluctuate with changes in your income.

What are the advantages to consolidating?

Consolidation allows you to lower your monthly payment by lengthening the repayment period beyond the standard 10-year payback schedule. Depending on the amount of your education debts, you can extend your payback period up to 30 years and significantly reduce your monthly payment. However, be aware that extending the term of your loan will increase your total interest costs, so you should explore your options.

1.  If your loans are with different lenders or loan servicers, loan consolidation 
     will eliminate the need to make multiple monthly payments. 

2.  Federal Stafford Subsidized and Unsubsidized loans carry a variable interest 
     rate that is adjusted annually. Federal Consolidation Loans carry rates that 
     are fixed for the life of the loan.

3.  For borrowers submitting a consolidation application during their grace 
     period, the interest rate for the Federal Consolidation Loan will be based on  
     the in-grace rate, which can be up to .6 % lower than the interest rate 
     during repayment for Stafford loans first disbursed on or after July 1, 1995. 
     Thus, consolidating in grace can significantly reduce interest costs.

4.  Under a consolidation loan the federal government will continue to honor 
     interest subsidy benefits for any subsidized FFELP or subsidized direct loans 
     included in a Federal Consolidation Loan.

What are the disadvantages to consolidating?

Consolidation can significantly increase your total interest costs, because you'll be making smaller installments over a longer period of time. Depending on the loan balance and interest rate, consolidation can double or triple your total interest expenses. It is advisable to accelerate payments whenever possible.

Is there a minimum monthly payment?

Under federal rules governing the level repayment plan, your monthly payment must be at least $50.  Federal rules permit lenders to set lower minimums for graduated repayment and income-sensitive repayment options.  However, your monthly payments cannot be less than the accruing interest.

Why should you consolidate?

1.  You're struggling to make ends meet.
     If you're having trouble covering all your regular household expenses, 
     including your rent or mortgage payments, car loan installments, food bills, 
     and utility payments, consolidating your student loans may help ease the 
     pressure on your monthly budget. Consolidation can reduce your monthly 
     payment amount by about 10 to 40 % - or more - depending on your loan 
     balance, the length of the payback period, and the interest rate on your 
     Federal Consolidation Loan.

2.  Your credit cards are carrying big balances.
     You can save money by paying off your credit card balances sooner, even if 
     it means taking longer to pay back your student loan. Your credit card issuer 
     could be charging interest at an annual rate of 18 to 22 %. That's more than 
     twice the rate charged on your student loans. In addition, federal law now 
     permits many borrowers to deduct up to $2,500 a year in interest paid 
     during the repayment of education loans. Interest on personal credit card   
     balances is not tax deductible. What's more, credit cards are a source of  
     instant credit that can be a lifesaver during financial emergencies, so you  
     should avoid maxed-out plastic.

3.  Your income tends to fluctuate.
     If you're paid on a commission basis, you might need the safety net provided 
     by a long-term repayment plan.

4.  You have another worthwhile use for the money.
     A smaller payment on your student loans may be necessary if you're trying 
     to get a home mortgage, save the seed capital needed to start a small 
     business, or help a family member go to college.

How do I consolidate?

The first step is to contact your federal loan provider*.

Access Group	Sallie Mae
Bank One	Direct Loan Consolidation
Chase	edsouth
Educaid/First Union

* If you lender is not listed below and you need assistance in finding their contact information, please e-mail Central Financial Aid at : finaid@regent.edu

For additional details about student loan consolidation you may refer to information provided by:

The U.S. Department of Education

FederalConsolidation.org