Consolidation Loans

Loan consolidation involves combining a number of existing loans into a single, new loan with one lender. In some cases you may be able to consolidate a single loan.

Consolidation pros:

  • Turn variable-rate loans into fixed-rate loans
  • Extend repayment length (consolidation loans have repayment lengths associated with loan balances; the longest repayment term on a Federal Family Education Loan Program loan is 25 years, but depending on your consolidation loan balance you may extend repayment to 30 years. Extending repayment may lower monthly payments.
  • To place all of your federal loans under the Direct Loan program so that your Income-Based Repayments will qualify toward the 120 payments that make loans eligible for Public Service Loan Forgiveness.
  • Have just one lender to pay each month

Consolidation cons:

  • Consolidating fixed rate loans may increase the interest rate because the consolidation interest rate is calculated by using the weighted average interest rates of the underlying loans, and if necessary, rounding up to the nearest 1/8%.
  • Consolidation loans have no grace period; if you are considering consolidation, it is wise to do so at the end of your existing loans’ grace periods to take full advantage of the grace period. Be sure to consolidate variable-rate loans while still in grace, though, because the interest rate upon which the consolidation rate is calculated will be lower.
  • Because you are borrowing a new loan (possibly with a new lender), the terms and borrower benefits may be less favorable than those that existed on the loans you are consolidating (called the “underlying loans”).
  • Extending repayment over a longer period of time will cost you more in interest in the long run.
  • You will lose the ability to make extra payments specifically towards higher-interest rate loans in order to pay them off first.
  • It is generally not recommended to consolidate Perkins loans because of certain repayment benefits that are lost once a Perkins loan is consolidated. However it is probably to your benefit to consolidate your Perkins loans if you believe you will later qualify for Public Service Loan Forgiveness. If you are considering adding a Perkins loan to your consolidation loan, be sure to discuss it first with the Office of Financial Aid.

For more information on federal loan consolidation, visit: Finaid.org’s consolidation page