Student Loan Consolidation

Whether you’re working on your PhD or your BA, chances are your degree will cost you thousands, if not hundreds of thousands of dollars. Luckily, the federal government offers a wide variety of options for financing your education ranging from “free” money such as Federal Pell Grants and the Monetary Award Program (MAP) to PLUS Loans, Stafford Loans, and Federal Perkins Loans.

Stafford Loans are low-interest student loans guaranteed by the government; a Perkins Loans is a campus-based loan with a fixed 5% interest rate and a nine month grace period -- also guaranteed by the federal government, and PLUS Loans (Parent Loans for Undergraduate Student) are granted to students based on the parents credit worthiness.

In most cases, students may have to take out a series of loans from a number of different lenders and with varying amounts, repayment terms, and repayment schedules. Students may find that repaying several different lenders is not only cumbersome, but the payments may also be too high or totally overwhelming upon graduation and beyond. In these cases, relief is available through student loan consolidation.

Student loan consolidation is the refinancing of multiple student loans guaranteed by the federal government. Higher Education Act (HEA) provides for a loan consolidation program under the Direct Loan Program and the Federal Family Education Loan (FFEL) Program. Under these programs, the student’s loans are paid off and a new consolidated loan is created. The loan consolidation program is a good option for several reasons:

• It simplifies the loan repayment process by combining all of the student’s Federal student loans into one loan. Meaning there’s only one place to pay, once a month
• In most cases the interest rate will be lower that one or all of the original loans
• The monthly payments are typically lower – possibly 50% lower than the original monthly payments
• The amount of time to repay the loan will be extended well beyond the original time period
• Consolidation may act as safeguard against default

Applying for student loan consolidation is actually quite easy. But before applying, you can use an online calculator to estimate what your new monthly payments would be under one of four repayment plans including: Standard Repayment Plan, Graduated Repayment Plan, Extended Repayment Plan, and Income Contingent Repayment Plan (ICR).

Under the Standard Repayment Plan, you will pay a fixed amount each month and your payments will be no less than $50 a month for up to anywhere from 10-30 years, based on total debt. Under the Graduated Repayment Plan, your minimum payment amount will equal the amount of interest accrued monthly. Payments will start out on the low end, then gradually increase every two years for up to anywhere from 10-30 years. The Extended Repayment Plan is for students with student loan debt that exceeds $30,000. Under this plan, you will have a maximum of 25 years to repay the loan and you can choose a fixed rate payment option (same amount each month) or a graduated monthly payment option, as discussed above.

Under the Income Contingent Repayment Plan (ICR), monthly payments are based on several factors: yearly income, Direct Loan Balance, and family size. Payments will be spread out over a time period not to exceed 25 years.

To apply for student loan consolidation, gather the following information then log onto the Federal Student Aid Programs Student Loan Consolidation Website:

• Last monthly billing statement 
• Annual statement or quarterly interest statement
• Coupon book
• Website of your lender or servicer
• Your school's financial aid office information (if you are currently in school)