Consolidating federal student loans

You probably have heard or seen the loan consolidation commercials. Have you wondered what loan consolidation, particularly for federal student loans, is about? In simplest terms, a loan consolidation is a process of combining multiple loans into one.

The motivation in so doing is to have a single monthly payment, fixed interest rate, and longer repayment term. In this post, we are talking about consolidating federal student loans such as Federal Stafford or PLUS Loans, not just any loan.

Loan consolidation considerations

There are number of advantages associated with consolidating federal student loans:

• consolidation may make loan repayment easier to manage
• one new loan with a fixed interest rate
• a single (and lower) monthly payment
• extended the repayment term
• opportunity to gain discounts/incentives not available on current loans.
• no fees to consolidate student loans
• no credit check to qualify for consolidation

So all this sounds great but any downside? There are number of things to watch for when consolidating federal student loans:

• you may pay more interest as a result of making a longer repayment term
• repaying the loan will take longer if you have extended the repayment term
• if there is a better interest opportunity in the future, you may not use that opportunity as only one consolidation is permitted (there are exception to this rule, however, such as student returning back to college or when new eligible loans need consolidating).
• Same interest rate regardless of lender. This means you can’t shop around to find a better interest rate. This does not mean you should not shop around for other incentives.
• You cannot use consolidation if your loans are in default
• Your total loan debt must be more than the minimum required for consolidation

Applying for a federal student loan consolidation

You can apply by phone or online. You will need the following information ready:

• Your personal information (such as social security number, contact information, driver license number)
• Your employer name and address
• Names and contact information of current lender(s)