The Best Loan Consolidation Suggestions
What Is a Loan Consolidation
Consolidation Loans combine several student or parent Loans into one bigger Loan from a single lender,
which is then used to pay off the balances on the other Loans. It is very similar to refinancing a mortgage.
Consolidation Loans are available for most federal Loans, including FFELP (Stafford, PLUS and SLS),
FISL, Perkins, Health Professional Student Loans, NSL, HEAL, Guaranteed Student Loans and Direct Loans.
Some lenders offer private Consolidation Loans for private education Loans as well.
Most FFELP lenders are no longer offering Consolidation Loans because these Loans are no longer profitable.
Students can still consolidate their Loans with the US Department of Education's Federal Direct Loan Consolidation
program at Loan Consolidation.ed.gov even if their college does not participate in the Direct Loan Program.
No Cost to Consolidate
Aside from a slight increase in the interest rate on the Consolidation Loan, there is no cost to consolidate your Loans.
There are no fees to consolidate. Both student and parent borrowers can consolidate their education Loans. (Students and parents cannot
combine their c, since only Loans from the same borrower can be Consolidated.
But they can consolidate their Loans separately.)
You Can Consolidate with Any Lender
Most lenders require a minimum balance before they will consolidate your Loans. For example, many lenders will only offer
Consolidation Loans for borrowers with Loan balances of at least $7,500. A few lenders will offer Consolidation Loans
for balances of $5,000 or more, and the Federal Direct Consolidation Loan program has no minimum balance for Consolidation Loans.
(Lenders may not discriminate against borrowers who seek Consolidation Loans on the basis of number/type of student Loans, type/category
of educational institution, the interest rate on the Loans, or the type of repayment schedule sought by the borrower. Lenders are, however,
able to discriminate on the basis of the amount of the Loans being Consolidated, so lenders can set a minimum balance on the Loans.)
Which Loans Can be Consolidated?
Any federal education Loan can be Consolidated. You can even consolidate a single Loan. There are, however, a few restrictions on Consolidating
a Consolidation Loan. You can consolidate a Consolidation Loan only once. In order to reconsolidate an existing Consolidation Loan,
you must add Loans that were not previously Consolidated to the Consolidation Loan. You can also consolidate two
Consolidation Loans together. But you cannot consolidate a single Consolidation Loan by itself.
These restrictions have been in effect since early 2006. Note that when you reconsolidate a Consolidation Loan,
it does not relock the rates on the Consolidation Loan. The Consolidation Loan is treated as a fixed
rate Loan within the weighted average interest rate formula used to calculate the interest rate on the new
Consolidation Loan. Consolidation does not pierce the veil on previous Consolidations.
The new restrictions on Consolidating a Consolidation Loan limit your ability to use Consolidation
to switch lenders. Generally, you will consolidate your Loans once, toward the end of the grace period or after the Loans
enter repayment, and then be locked into that lender for the lifetime of the Loan. If you want to preserve your ability to
use Consolidation in the future to switch lenders, you should exclude one of your Loans from the Consolidation.