Consolidation

Federal Direct Consolidation Loans

Loan consolidation is the process of combining one or more student loans into a new, single loan.

A good resource for information on consolidation is  http://studentaid.ed.gov/repay-loans/consolidation where you can learn about how loan consolidation works and decide if it is the right choice for you.   You may also want to use the Repayment Estimator available after you sign on at www.studentloans.gov to understand the impact of consolidation from among all of your repayment plan choices.

Good reasons to consolidate:

  • If your loans are with multiple servicers, and you want to simplify your payments.
  • If you have FFEL loans, Perkins Loans, HPL or LDS loans, and you intend on participating in the Public Service Loan Forgiveness Program.

Be aware that:

  • Consolidating uses a weighted average approach to a new interest rate, rounded up to the nearest 1/8%, so deciding to include or not include some of your loans depends greatly on balances, interest rates on each loan, and repayment benefits such as longer grace periods or deferments on your loans.
  • Consolidation is a new loan, and underlying loans are paid off.  You cannot return to your loans as they were in their original state prior to consolidation.
  • Generally, you cannot consolidate an existing consolidation loan again unless you include an additional, Direct Loan or FFEL Program loan in the consolidation.
  • Consolidating "re-starts" the count of the number of eligible payments made to qualify for Public Service Loan Forgiveness.

How to apply (it's easy!):

Visit www.studentloans.gov (You'll need to setup an FSA userid and password). The welcome page will give you many options, including “Complete Direct Consolidation Application and Promissory Note” on the lower left side of the page.

Some Pointers:

  • Allow some quiet time to review your options carefully as you build your application:  it is not possible to save and return to finish it at a later time.
  • You will need personal information including two references and their addresses and phone numbers.  References from your original loan document may already be available on this screen—if so you can add them and edit them.
  • Your Federal loan data (including Perkins loans) will already appear, but you will need to add any HPSL or LDS  loans you are thinking of including.
  • Take some time to review the impact of including or excluding some loans – the interest rate and monthly payment amounts will update as you change these choices.
  • If you are considering participating in the Public Service Loan Forgiveness Program (PSLF) the system will prompt you to choose Fed Loan Servicing as your loan servicer.  Once you are enrolled in the PSLF Program and tracking your qualifying employment and payments, Fed Loan Servicing will automatically become your servicer regardless of your servicer choice at the time of consolidation.  
  • The information at http://www.consumerfinance.gov/blog/scoring-student-loan-servicers/ provides customer service ratings for student loan servicers.
  • You may request a delay in the processing of your application to ensure that your consolidation loan is not issued before the end of your grace period if your current loans are in grace.
  • After completing your online application all questions about the status of your application and your consolidation loan should be directed to the servicer you selected for the new loan. No updates will appear on the application site.
  • Be sure to review the consolidation notifications you receive from the servicer after they process your application - make sure it is what you wanted!

Private Consolidations

Some companies offer to purchase your federal, institutional, and other private debt and offer you a new, private, consolidated loan.  Terms and conditions of these loans are at the discretion of the lender.  Before pursuing a private consolidation offered at a lower interest rate, be sure you read the fine print, understand all the terms and conditions of the new loan, and understand what federal benefits (such as income-driven repayment, deferment, forbearance, forgiveness plans, fixed interest rates, and death/disability benefits) you may be losing by transitioning your federal debt to private debt.

 

Want help deciding if consolidation is the right choice for you?

Make an appointment to meet with UCSF's Resource Advisor by calling 415-476-4181.