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Student Loan Affiiate Program FAQ's: Federal Student Loan Consolidation

TOP 21 FEDERAL STUDENT LOAN CONSOLIDATION FAQs (FREQUENTLY ASKED QUESTIONS):
1. What is the difference between a private student loan and a federal student loan?
Federal student loans follow guidelines set forth by the U.S. Dept of Education and typically offer fixed and lower interest rates compared to private student loans. However, Federal loans, unlike most private loans, have borrowing limits, which may not allow a student to borrow enough to cover the entire cost of education. Private loans help students fill the funding gap between the cost of attending school and the amount of federal loans, grants, and available scholarships. Both private and federal student loans typically allow students to defer payments while in school and some offer economic forbearance options once a student completes school. Unlike federal loan programs, private lenders assess the credit history of the borrower and cosigner before making a loan.


2. What are the benefits of a Federal Direct Consolidation Student Loan?
Federal consolidation loans allow borrowers to combine one or more of their Federal education loans into a new loan that offers several advantages. 
One Lender and One Monthly Payment: With only one lender and one monthly bill, it is easier than ever for borrowers to manage their debt. Borrowers have only one lender, the U.S. Department of Education, for all loans included in a Federal Consolidation Loan.
Flexible Repayment Options: Borrowers can choose from multiple plans to repay their Federal Consolidation Loan, including an Income Contingent Repayment Plan. These plans are designed to be flexible to meet the different and changing needs of borrowers. With a Federal Consolidation Loan, borrowers can switch repayment plans at anytime.
No Minimum or Maximum Loan Amounts: There is no minimum amount required to qualify for a Federal Consolidation Loan!
Varied Deferment Options: Borrowers with Federal Consolidation Loans may qualify for renewed deferment benefits. If borrowers have exhausted the deferment options on their current Federal education loans, a Federal Consolidation Loan may renew many of those deferment options.
Reduced Monthly Payments: A Federal Consolidation Loan may ease the strain on a borrower's budget by lowering the borrower's overall monthly payment. The minimum monthly payment on a Federal Consolidation Loan may be lower than the combined payments charged on a borrower's Federal education loans.
Retention of Subsidy Benefits: There are two (2) possible portions to a Federal Consolidation Loan: Subsidized and Unsubsidized. Borrowers retain their subsidy benefits on loans that are consolidated into the subsidized portion of a Federal Consolidation Loan.


3. Who is eligible for a Federal Consolidation Loan?
To qualify for Federal Consolidation Loans, borrowers must have at least one Direct Loan or Federal Family Education Loan (FFEL) that is in grace, repayment, deferment, or default status. Loans that are in an in-school status cannot be included in a Federal Consolidation Loan.
Borrowers can consolidate most defaulted education loans, if satisfactory repayment arrangements are made with their current loan holder(s) or agree to repay their new Federal Consolidation Loan under the Income Contingent Repayment Plan or Income Based Repayment Plan.
Borrowers who do not have Direct Loans may be eligible for a Direct Consolidation Loan if they include at least one FFEL Loan and have been unable to obtain a Federal Consolidation Loan with a FFEL consolidation lender or have been unable to obtain a Federal Consolidation Loan with income-sensitive repayment terms acceptable to them or intend to apply for loan forgiveness under the Public Service Loan Forgiveness Program.
Borrowers who have only a Direct Consolidation Loan cannot consolidate again unless they include an additional loan.


4. Can I get a Federal Student Consolidation Loan if I Don't Have Any Direct Loans?
Yes, borrowers without any Direct Loans may be eligible for a Federal Consolidation Loan if they include at least one FFEL Loan and have been unable to obtain a Federal Consolidation Loan with a FFEL consolidation lender or have been unable to obtain a Federal Consolidation Loan with income-sensitive repayment terms acceptable to them or intend to apply for loan forgiveness under the Public Service Loan Forgiveness Program.

 
5. Can I Consolidate a PLUS Loan?
Yes, PLUS Loans can be consolidated into a Federal Consolidation Loan.


6. Can I Consolidate a Perkins Loan? 
Yes, it is possible to consolidate Perkins Loans into a Federal Consolidation Loan if borrowers include at least one Direct Loan or Federal Family Education Loan (FFEL) in their request. Perkins Loans cannot be included in a Direct Consolidation Loan by themselves. Furthermore, all Perkins Loans consolidated into the Federal Loan Program will be included in the unsubsidized portion of the Federal Consolidation Loan.
Borrowers should carefully weigh the advantages and disadvantages of including a Perkins Loan in a consolidation loan. While the borrowers gain the benefits of the Federal Consolidation Loan Program, they also lose the benefits associated with the Perkins Loan Program.
We recommend that you consider the following points prior to making a decision:

  • Perkins Loans are eligible for additional cancellation benefits, such as performing certain kinds of public service. This benefit is lost when a Perkins Loan is included in a Direct Consolidation Loan.
  • Perkins Loans have a grace period of 6-9 months. When a Perkins loan is consolidated, any remaining grace period is lost.
  • Interest does not accrue when a Perkins Loan is placed in deferment. Since a Perkins Loan is included in the unsubsidized portion of a Federal Consolidation Loan, borrowers are responsible for interest that accrues throughout the deferment period.
  • Perkins Loans generally have a lower interest rate but have a less flexible repayment period of 10 years.
  • The Federal Consolidation Loan Program offers standard, graduated, extended and income contingent repayment plans which may lower monthly payments.

7. Can I Consolidate Health Professions Student Loans?
Yes, With a Federal Consolidation Loan, borrowers can include certain health profession loans sponsored through the U.S. Department of Health and Human Services with other Federal education loans in their Federal Consolidation Loan. Borrowers must include at least one Direct Loan or Federal Family Education Loan (FFEL) Program loan in the Federal Consolidation Loan.


Eligible Health Professions Loans

  • Health Professions Student Loans (HPSL)
  • Health Education Assistance Loans (HEAL)
  • Loans for Disadvantaged Students (LDS)
  • Nursing Student Loans (NSL)

The Advantages 
Federal Consolidation Student Loans offer many advantages to borrowers of health professions loans, including:

  • a longer repayment period;
  • a lower monthly payment; AND
  • a single monthly payment

When deciding to consolidate a health professions student loans, consider the following advantages:
Borrowers who have defaulted on a HEAL may include the collection costs and late fees in a Federal Consolidation Loan. These fees may not be included in HEAL Refinancing.
Under the Direct Consolidation Loan Program, HEAL borrowers may repay under the Income Contingent Repayment (ICR) Plan for the life of the loan. HEAL lenders are only required to offer an ICR Plan for the first five years.
To qualify for an in-school deferment, Federal Consolidation Loan borrowers must be attending school at least half-time. HPSL, HEAL, and LDS borrowers are required to attend school full time to be eligible for an in-school deferment.
Issues to Consider
Before applying for a Direct Consolidation Loan, consider the following points:
HEAL loans have fixed or variable rate that are tied to the average 91-day Treasury bill rate plus 3 percentage points. There is no maximum interest rate for variable rate HEAL loans. In contrast, the interest rate for a Federal Consolidation Loan is based on the weighted average of the interest rates on loans being consolidated, rounded to the nearest higher one-eighth of one percent. It is a fixed rate and will not exceed 8.25 percent.
The interest on some health professions loans is subsidized by the U.S. Department of Health and Human Services. This interest subsidy is lost when these loans are included in a Federal Consolidation Loan.
Interest does not accrue during deferment for HPSL, LDS, and NSL borrowers. Interest does accrue during deferment on the portion of Direct Consolidation Loans that include health professions loans.
Borrowers who consolidate Health Professions Loans do not retain the deferment benefits that apply to those loans. However, they gain the deferment benefits that apply to Federal Consolidation Loans.


8. Can I consolidate my student loans if I am currently enrolled in school?
Yes and No. Effective for Direct Consolidation Loan applications received on or after July 1, 2006, borrowers who are enrolled in school cannot consolidate loans that are in an in-school status. These are loans that have not yet entered or used up the 6-month grace period entitlement.
Borrowers still can consolidate loans that are in grace, repayment or deferment.
Borrowers can add loans to an existing consolidation for up to 180 days after the Federal Consolidation Loan was first disbursed. If more than 180 days has passed, borrowers can apply for a new Federal Consolidation Loan. The new consolidation loan can include the original Federal Consolidation loan and must include another eligible outstanding Federal education loan.
Example: A borrower who has education loans stopped attending school for a year and the loans used up the 6-month grace period and entered repayment. The borrower returned to school and obtained a new loan. While enrolled, the borrower applies for a Federal Consolidation Loan. The Federal Consolidation Loan can include the first group of loans the borrower received, but not the newly received loans. Once the borrower leaves school again he or she can add these new loans to the existing consolidation loan or submit a new Federal Loan Consolidation application to combine the original consolidation loan and the other remaining loans.
Temporary In-School Consolidation Authority
Borrowers whose consolidation applications are received on or after July 1, 2010 and before July 1, 2011 may qualify to consolidate loans that are in an in-school status into a Federal Consolidation Loan. During this one (1) year period, borrowers who meet the following requirements may consolidate loans that are in an in-school status into a Federal Consolidation Loan.


9. Can I consolidate an existing student consolidation loan?
Yes, under three conditions:
Borrowers can consolidate existing consolidation loans into a new Federal Consolidation Loan if they include at least one other FFEL or Direct Loan into the new consolidation loan.
Borrowers can consolidate a single Federal Consolidation Loan if the loan is in default status or has been submitted to a guaranty agency for default aversion by the loan holder.
Borrowers can consolidate a single Federal Consolidation Loan if they intend to apply for loan forgiveness under the Public Service Loan Forgiveness Program.


10. Can I consolidate my student loans that are in grace?
Yes, Borrowers who consolidate loans that are in grace may receive a lower interest rate on their Federal Consolidation Loans if they are consolidating variable rate loans. However, once grace status loans are consolidated borrowers lose any remaining grace period. Borrowers receive their first bills within 60 days after the new Federal Consolidation Loan is made.


11. Can I Consolidate Jointly with My Spouse?
No, Effective July, 1 2006 a married couple may no longer obtain a Direct Consolidation Loan as joint borrowers.


12. Can I Consolidate a Defaulted Loan?
Generally, Federal education loan(s) in default may be consolidated in a Direct Consolidation Loan if borrowers:
Agree to repay the loan(s) under either the Income Contingent or Income Based Repayment Plan. 
OR
Make satisfactory repayment arrangements with the current loan holder(s).
If, before applying for consolidation, borrowers who want to completely clear the default notation from their credit records, they may want to consider another option: loan rehabilitation. 
Borrowers cannot consolidate defaulted loans under these conditions:
If a judgment has been issued against a defaulted loan, it cannot be included in the consolidation unless the judgment order has been vacated (dismissed).
If they are trying to consolidate defaulted Direct Consolidation Loans and do not include at least one additional eligible loan in the consolidation.


13. What are the consequences of defaulting?
Borrowers who fail to make a payment on time are considered delinquent on their Federal Consolidation Loans. Borrowers who do not make payments for 270 days are in default. Defaulting has severe and long-lasting consequences, as follows:

  • The Department of Education can immediately demand repayment of the total loan amount due.
  • The Department of Education will attempt to collect the debt and may charge collection costs.
  • The Department of Education reports defaulted loans to national credit bureaus, damaging borrowers’ credit ratings and, making it difficult for borrowers to make purchases such as cars or homes.
  • Borrowers with loans in default are ineligible for Title IV student aid.
  • Borrowers with loans in default are ineligible for deferments
  • The Internal Revenue Service can withhold borrowers’ Federal income tax refunds.
  • Borrowers' wages may be garnished.

14. What are the repayment plans?
When repaying a Federal Consolidation Loan, you may choose from multiple repayment plans with various terms.
If you consolidate more than one loan type (subsidized, unsubsidized and PLUS) you will have one Federal Consolidation Loan with up to two parts: Direct Subsidized and Direct Unsubsidized (which includes PLUS) Consolidation Loans. Even with up to two parts of each Direct Consolidation Loan, you make only one payment each month.
If you have not chosen a repayment plan, are not required to pay using ICR, and we determine that you currently have other active Direct Loans, we may assign your new Federal Consolidation Loan(s) to the same repayment plan as your active loan(s). If you do not currently have active Direct Loan(s), we may assign your new Federal Consolidation Loan(s) to the Consolidation Standard Repayment Plan. You can change at a later date to other plans for which you may be eligible. 
Standard Repayment Plan: You will pay a fixed amount each month until your loan(s) are paid in full. Your monthly payments will be at least $50 for up to 10 to 30 years, based on your total education indebtedness.   
Graduated Repayment Plan: Your minimum payment amount will be at least equal to the amount of interest accrued monthly. Your payments start out low, and then increase every two years for up to 10 to 30 years, based on your total education indebtedness   
Extended Repayment Plan: To be eligible, your loan balance must be greater than $30,000 and you will have up to 25 years to repay your loan(s). You have two payment options:
Fixed Monthly Payment Option -You will pay a fixed amount each month until your loans are paid in full. Your monthly payments will be at least $50.
Graduated Monthly Payment Option - Your minimum payment amount will be at least $50 or the amount of interest accrued monthly, whichever is greater. Your payments start out low, and then increase every two years.   
Income Contingent Repayment Plan (ICR):Your monthly payments will be based on annual income, Direct Loan balance and family size, and are spread over a term of up to 25 years.   
Income-Based Repayment Plan (IBR):Your monthly payments will be based on annual income and family size, and spread over a term of up to 25 years. You must be experiencing a partial financial hardship to initially select this plan and once you select this plan you cannot change to any other plan except the Standard Plan. 


Standard Repayment Plan
Under this plan, you will pay a fixed amount of at least $50 each month for up to 10 to 30 years, based on your total education indebtedness. This plan may result in lower total interest paid when compared to repayment under one of the graduated plans.


Graduated Repayment Plan
Under this plan, you will pay a minimum payment amount at least equal to the amount of interest accrued monthly for up to 10 to 30 years, based on your total education indebtedness. Your payments start out low, and then increase every two years. Generally, the amount you will repay over the term of your loan will be higher under the Graduated Repayment Plan than under the Standard Repayment Plan. This plan may be beneficial if your income is low now but is likely to steadily increase.


Extended Repayment Plan
To qualify for this plan, your Direct Loan balance (your new Federal Consolidation Loan Amount plus other Direct Loans) must be greater than $30,000. Your plan options are:
Fixed Monthly Payment Option - Under this plan, you will pay a fixed amount of at least $50 each month for up to 25 years. Repayment under this plan will result in lower total interest paid when compared to graduated plans with similar terms.
Graduated Monthly Payment Option - Under this plan, you will pay a minimum payment amount of at least $50 or the amount of interest accrued monthly, whichever is greater, for up to 25 years. Your payments start out low and then increase every two years. Repayment under this plan may provide lower initial monthly payments, although the total interest paid may be greater when compared to plans with similar terms with fixed payments. This plan may be beneficial if your income is low now but is likely to steadily increase.
**Extended repayment terms are available to Direct Loan borrowers with no outstanding principal or interest balances as of October 7, 1998 and with more than $30,000 in Direct Loans.


Income Contingent Repayment (ICR) Plan
The ICR Plan gives you the flexibility to meet your obligations without causing you financial hardship. Monthly payments are based on annual Adjusted Gross Incomes (AGI), loan balance and family sizes.
As an alternative to having the Department obtain your (and your spouse’s, if applicable) AGI directly from the IRS, a copy of your most recently filed federal tax return (1040, 1040A, 1040EZ) or a 4506T IRS transcript is acceptable. Monthly payments are adjusted annually to reflect inflation, family size and income.
NOTE: If your (and your spouse’s, if applicable) AGI is not available when income information is requested from the IRS or if the AGI from your most recently filed tax return does not reasonably reflect your (and your spouse’s, if applicable) current income, supporting documentation provided for alternative documentation of income will be used to calculate taxable gross income in lieu of AGI which may result in a higher monthly payment amount.
Monthly payment amounts for some borrowers may not be enough to cover the interest accruing on their loans. This situation is referred to as negative amortization. In such cases, the unpaid interest is capitalized and added to the principal balance once per year. The amount added to the principal balance will never exceed 10 percent of the original Federal Consolidation Loan amount. Once this capitalization limit has been reached, interest continues to accrue but is not capitalized. The capitalization limit does not apply to interest that accrues during deferment or forbearance.
Under this plan, it is possible you will not make payments large enough to pay off your loans in 25 years. If loans are not fully repaid after 25 years of repayment, any unpaid amount will be forgiven. The maximum 25-year repayment period may include prior periods of repayment under certain other repayment plans, and certain periods of economic hardship deferment. The forgiven amount may be considered taxable income.
Alternative Documentation of Income
Alternative documentation of income is required for Federal Consolidation Loan borrowers if their underlying loans were in the first or second year of repayment when they were consolidated. Alternative documentation includes pay stubs, canceled checks, or, if these are unavailable, signed statements explaining income resources.


Income-Based Repayment (IBR) Plan
The IBR Plan gives you the flexibility to meet your obligations without causing you financial hardship. Monthly payments are based on annual Adjusted Gross Incomes (AGI), family size, and you must be experiencing a partial financial hardship to initially select this plan.
As an alternative to having the Department obtain your (and your spouse’s, if applicable) AGI directly from the IRS, you may submit a copy of your most recently filed federal tax return (1040, 1040A, 1040EZ). Monthly payments are adjusted annually to reflect a change in income, a change in family size, or changes to your partial financial hardship status.
NOTE: If your (and your spouse’s, if applicable) AGI is not available when income information is requested from the IRS or if the AGI from your most recently filed tax return does not reasonably reflect your (and your spouse’s, if applicable) current income, supporting documentation provided for alternative documentation of income will be used to calculate taxable gross income in lieu of AGI which may result in a higher monthly payment amount.
Monthly payment amounts for some borrowers may not be enough to cover the interest accruing on their loans. This situation is referred to as negative amortization. If your payment does not cover all of the interest accumulating monthly on your Direct Subsidized Loans or Direct Subsidized Consolidation Loans, you will not be charged the remaining portion of the interest on those loans for a period not to exceed three consecutive years from the time you begin repayment under the IBR Plan.
Under this plan, it is possible you will not make payments large enough to pay off your loans in 25 years. If loans are not fully repaid after 25 years of repayment, any unpaid amount will be forgiven. The maximum 25-year repayment period may include prior periods of repayment under certain other repayment plans, and certain periods of economic hardship deferment. The forgiven amount may be considered taxable income.
Alternative Documentation of Income
It is recommended that you provide Alternative Documentation of Income with your consolidation application. If you submit the income information with the application and we determine you are qualified for a partial financial hardship, you may be able to start repaying your new consolidation loan under the IBR Plan immediately. Otherwise, we will request that you submit your income information and, until it is received, your initial monthly payment amounts will be based on the Standard repayment plan. Alternative documentation includes pay stubs, canceled checks, or, if these are unavailable, signed statements explaining income resources.


15. What is Alternative Documentation of Income?
A form that is used to accurately identify the income level of borrowers that are requesting to repay or are currently repaying their loan(s) under the Income Contingent Repayment (ICR) or Income-Based Repayment (IBR) Plan. The form is required:
for borrowers that are in their first year of repayment;
for borrowers that are in their second year of repayment that have been notified that alternative documentation of income is required; or
for borrowers that have been notified that the Internal Revenue Service (IRS) is unable to provide the U.S. Department of Education with their (or spouse’s, if applicable) Adjusted Gross Income (AGI)used.


16. Can I Change Repayment Plans?
Yes. Most borrowers may change repayment plans at any time. However, borrowers who are required to repay under the ICR plan must make three consecutive monthly payments before changing to another plan. There is no limit to the number of times borrowers may change plans.
A borrower may change to the ICR plan at any time. After the change, the borrower's repayment period will be a maximum of 25 years. If loans are not fully repaid after 25 years of repayment, any unpaid amount will be forgiven. The maximum 25-year repayment period may include prior periods of repayment under certain other repayment plans, and certain periods of economic hardship deferment. The forgiven amount may be considered taxable income. 
A borrower may change to the IBR plan at any time. After the change, the borrower's repayment period will be a maximum of 25 years. If loans are not fully repaid after 25 years of repayment, any unpaid amount will be forgiven. The maximum 25-year repayment period may include prior periods of repayment under certain other repayment plans, and certain periods of economic hardship deferment. The forgiven amount may be considered taxable income. If you choose to leave the IBR Plan at any time, your account will be placed on the Standard repayment plan. You cannot change to any plan other than Standard at any time after being on the IBR repayment plan.
A borrower may change to another plan as long as the new plan has a repayment term that is longer than the amount of time the borrower has already spent in repayment. The new repayment term is determined by subtracting the amount of time a borrower has spent in repayment from the term allowed under the new plan.


17. How Long Does it Take to Consolidate My Loans Once I Submit My Application?
The consolidation process generally takes 60-90 days. Apply Today!


18. When Can I Expect My First Monthly Payment to be Due?
Borrowers will receive an initial billing statement from the Lender within 60 days of their existing loans being paid off. Payments are due monthly.


19. How do I make payments?
Borrowers receive monthly billing statements unless enrolled in Electronic Debit Account (EDA).
Borrowers receive a 0.25 percent discount on their interest rate for as long as they continue to make payments using electronic debit.
Borrowers must keep the Lender informed of changes of address and to their names. Borrowers are responsible for making payments on time regardless of whether they receive billing statements. Borrowers should send payments to:
U.S. Department of Education
Direct Loan Payment Center
P.O. Box 530260
Atlanta, GA 30353-0260


20. Can I Prepay on My Loan?
Borrowers can prepay on any loan without penalty. If a borrower pays more than the required monthly payment, the overpayment will first be charged to charges or collections, then to outstanding interest, and last to principal.  If there is no outstanding interest, the overpayment is applied to principal. If the prepayment is twice the borrower's monthly payment, the next payment due date is advanced unless the borrower specifies otherwise. The borrower will be notified of a revised due date.


21. Can I Get Started Today?
Yes!