Federal Direct Loan Consolidation FAQ

What are the benefits of federal consolidation loans?

• Reduces your monthly payment up to 53% - puts more cash in your pocket every month
• Locks in your interest rates - protect yourself from future rate increases
• Simplifies your finances by having you make only one payment a month
• Improves your credit rating
• Saves you money today when you need it most
• Provides flexible repayment options

Federal Consolidation allows borrowers (parents or students) to lock in today's low rates and to combine several federal student loans into one loan, simplifying repayment. Because repayment can be spread over a longer time period, your monthly payment amount will likely be lower.

Why consolidate your student loans with us?

• If you call us, you will speak with a consolidation expert with real experience and answers.
• Fast consolidation turnaround - averaging 30 to 60 days instead of the industry standard 120 - 180 days
• You do not need to be employed to consolidate your loans.
• You do not need to have any form of collateral.
• You do not need a co-signer of any kind.

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Who is eligible for student loan consolidation?

You must have more than $10,000 in outstanding federal student loans.

Want to find out if you are eligible? Request a free, no-obligation, information packet.

What is the interest rate?

The rate will be a fixed rate equal to a weighted average of the interest rates on your existing loans rounded up to the nearest one-eighth of one percent.

Currently, rates are set to the following starting points:

• Stafford Loans in grace: 6.62%
• Stafford Loans in repayment: 7.22%
• Stafford Loans in repayment prior to 7/1/98: 8.02%
• PLUS Loans: 8.02%
• Perkins Loans: 5%
• HEAL Loans: 4.125%
• Previous consolidations: existing consolidation rate

Consolidations done during the loan "grace" period will be based on a weighted average of the in-school interest rates, which are generally lower.

Please note that we cannot guarantee any interest rate due to the time it takes to process an application. We can only provide rough estimates; you should not rely on these estimates for financial planning! Why? Because consolidation takes between 30 - 60 days, and in that time period, you may be making payments, or your loan status may change. Because your interest rate is determined not only on the type of loan you have, but also on how much you owe, we can make no guarantee except to say that your interest rates will never exceed federally specified, published rates.

Why consolidate in my grace period?

If you are in your six-month post-graduation grace period, you can apply for and receive additional savings. During this six months, Stafford loans disbursed before July 1, 2006 have a 0.6% lower rate. By consolidating during this period, you are able to lock in this discounted rate. If you wait until your grace period is over your rate will increase by 0.6%. Your application must be received in our office before your grace period ends in order to obtain the additional 0.6% discounted rate. When you fill out your consolidation application, be sure to include your grace period end date, and we will complete your consolidation when your grace period expires.

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What types of loans may be consolidated?

• Stafford Loans - Subsidized and Unsubsidized
• Federal Direct Stafford Loans - Subsidized and Unsubsidized
• HEAL/HPSL Student Loans
• Parent PLUS Loans
• Federal Direct Parent PLUS Loans
• Federal Consolidation Loans*
• Federal Direct Consolidation Loans*
• Perkins Loans
• Nursing School Loans and more...

* Federal and direct consolidation loans cannot be reconsolidated unless additional loans are included. For example, if you consolidated your federal loans after your undergraduate degree and then wanted to also consolidate your graduate loans, you can combine the new loans with those that were reconsolidated.

What about private loan consolidation?

It's not a bad idea to consolidate your private student loans. What is a bad idea is combining federal and private student loans, which results in a consolidated private loan. This is bad for many reasons:

• You cannot defer payments on a private loan consolidation if you want to go back to school. You can with federal loan consolidation.
• You cannot forbear payments in case of economic hardship on a private loan consolidation.
• You cannot claim interest as a tax deduction on a private loan consolidation.
• You cannot apply for forgiveness on a private loan consolidation. Certain types of work, such as federal volunteer programs, teaching in economic development zones, and military service, among others, can qualify you to have part or all of your federal loans dismissed by the government.
• If you should pass away, private loans are passed to your next of kin. Federal loans are forgiven.
• Private loan consolidation very often has variable rates, which means you cannot lock in today's current historic low rates. Those rates may be tied to volatile indexes like the Prime Rate, which can jump as high as 13%.

Consolidating your federal student loans first is very important, because in doing so, you reduce the number of open lines of credit (loans) you have. This boosts your credit score, enabling you to obtain better terms for private loan consolidation.

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What about credit card consolidation, car loans, etc.?

Unfortunately, you cannot combine non-federal loans of any kind with federal student loans. Why? Because they are different types of loans. Federal student loans are backed by the US Government; if a student doesn't pay their loans, the government pays the lender, and then obtains payment from the student. The lending institutions (typically banks) know that they will always get their money back, which is why they can offer student loans at such low rates compared to other kinds of loans.

Private loans, such as credit cards, car loans, mortgages, etc. are backed by an individuals creditworthiness and collateral. Lending institutions take higher risks in loaning money privately than through the government. The government and the banks will not permit low-risk loans to be combined with high risk loans, and so you cannot consolidate other forms of debt with your federal student loans.

You should consolidate federal student loans first to improve your credit rating. You may then be able to qualify for a better interest rate on your private student loan consolidation.

What about consolidating with my spouse?

Spousal consolidation is no longer permitted. Sorry.

I consolidated in the past, can I do it again?

It depends. Consolidation is the combination of many loans into one. If you have consolidated in the past with someone other than the US Department of Education, you can't do it again unless:

• You have new loans that were not included in the original consolidation.
• Or, you have multiple consolidations from different lenders.

How is the consolidation loan repaid?

The first payment is due no more than 60 days from the date the Consolidation loan is disbursed. Repayment schedule choices include:

• Standard payments (fixed monthly payments over a fixed time)
• Graduated payments (payments which gradually increase over the years)
• Income-Sensitive payments (variable payment amounts based upon annual income) and
• Extended payments (more than $30,000 over a 25 year period or more than $60,000 over a 30 year period).

Are there any fees to consolidate?

No, there are no fees to consolidate federal student loans.

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Is there a credit check required to consolidate?

No, there is no credit check, because your federal student loans are guaranteed by the US Government.

Are there any early payment/repayment fees or penalties?

No, there are no early repayment penalties for a student loan consolidation. The government wants its money back. To make extra payments, consolidate now, and then when your payment schedule begins, simply specify "Extra payment to principal" on your early payments.

Did you know that early repayments are interest-free? It's true! Every dollar beyond your required monthly payment is paid towards the principal - it's like an interest-free payment!

Do I continue making loan payments while my consolidation application is in process?

Yes! Until you are notified that your loans have been paid off through the consolidation process, you should continue to make your student loan repayments. Since consolidation can take anywhere from 30 - 90 days, it's important that you don't fall behind on payments. Once your consolidation is complete, we will send you a new repayment schedule, with your new monthly payment and due date.

How long does a consolidation take?

Consolidation can take anywhere from 30 to 90 days; in rare cases it may take longer. The reason this takes as long as it does is that we retrieve payoff statements (called LVCs - Loan Verification Certificates) from your lenders. Some lenders are more cooperative than others.

Do you sell your loans?

There may be certain circumstances under which loans will be sold.

What do I do if I am not eligible to consolidate?

If you've previously consolidated, have loans with just one lender, loans totaling less than $7,500, or other conditions which prohibit you from consolidating your Federal Student Loans with us, there are a few options you can pursue:

• Consider refinancing a home or investment property to pay off the loan. If you've previously consolidated at high rates, using this option will give you tax benefits and still be cheaper than the rates you are paying now.
• Consider a personal line of credit from your bank or credit union.
• Consider a private loan consolidation.

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Can I defer or forbear?

Yes! One of the greatest benefits of federal student loan consolidation is that you retain all your federal borrowing privileges, such as:

• Deferment of your consolidation payments when you return to school
• Forbearance of your consolidation for up to 36 months
• Forgiveness of your entire loan if you pass away

How do you defer? Once you consolidate, you will receive paperwork for your payment schedule. At that time, you can request a deferment or forbearance form.

Did you know that your deferment and forbearance clock resets when you consolidate? It's true! If you've already used part of a deferment or forbearance on your existing federal student loans, when you consolidate, it's essentially a new loan, so your deferment and forbearance clocks reset, giving you a clean start!

Why Consolidate?

The very best time to consolidate your student loans is immediately after graduating, before your grace period ends. Doing so allows you to lock in the lowest possible interest rate on your loans.

Consolidating is a great option whenever you want to increase your monthly cash flow - by consolidating, you extend your repayment term which reduces the monthly payment you make.

Repayment Guidelines

Depending on the total amount of your consolidation loan, the government has set the following repayment periods:

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