There are two categories of education consolidation loans: federal and private.
Federal Loan Consolidation
Federal loan consolidation combines multiple federal loans into one new loan. There is no application fee for this federal program and you must go through one of the U.S. Department of Education’s approved consolidation servicers. The best resource for federal loan consolidation information is the lender through which you borrowed your federal loans, however, you’ll first want to understand the basics of consolidation by reviewing the information from the Federal Student Aid site here.
With federal loan consolidation you can consolidate any federal loans (Stafford, Perkins, GradPLUS). You cannot consolidate Harvard loans or private loans (CitiAssist, MEFA, etc.). There are other factors though to keep in mind when deciding which loans to consolidate:
- Based on federal regulations, Perkins loans become unsubsidized when they are consolidated (you will be charged interest through your grace period and if you later put the loan into deferment). Your grace period on the loan will change from nine months to six months, and you will also lose some specific loan forgiveness options that are available only on Perkins loans.
- If you consolidate a Direct Loan (Stafford or GradPLUS) prior to making your first 12 payments, you will lose the 1.5% upfront fee rebate you received, as you will not be making 12 on time payments (since by definition, when you consolidate your loans, each original loan is paid off in full).
- If you consolidate a loan for which you have a repayment incentive, you most likely will lose it if you consolidate (for example, the 1.25% repayment incentive on the Citibank GradPLUS is lost when consolidated).
Private Loan Consolidation
Private loan consolidation may allow you to combine multiple federal and private loans into one new loan, however, some programs only allow you to consolidate private loans that you have borrowed directly through their program.
We reached out to private lenders for information regarding private loan consolidation. Review the list of lenders who responded to our request.
Things to Consider Before Consolidating
When thinking about consolidating your loans, there are a few primary details to consider.
- Will the new interest rate be higher than the interest rates you already have on your loans?
- Will you be simplifying your repayment by reducing the number of loans and lenders?
- Are you losing flexibility in repayment to make higher payments towards a higher interest rate loan?
Timing and Repayment
The timing of your consolidation application is important. Be aware that you will go into repayment approximately 30-60 days after your consolidation is finalized. If you decide to consolidate, you may want to wait until you are closer to the end of your grace period so that you do not lose your grace period.
Consolidation in general will not affect your LIPP eligibility, even if you consolidate undergraduate loans or loans from other degree programs. You should, however, keep a record of what loans you consolidate and the original amounts to submit with your first LIPP application. For LIPP purposes, you want to choose a 10-year repayment schedule (in order to maximize your LIPP assistance). Most consolidation lenders should allow you to do this, but you may want to verify that this option is available before consolidating.
Depending on the timing of your loan consolidation, if you are losing part of your grace period, please remember that LIPP will cover you if you are both required to make payments and in a LIPP-eligible position. If you go into repayment in September and you are working in September, you can receive LIPP assistance, however, if you go into repayment in August but will not be working until September, LIPP will not cover you until September.