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.
Private Loan Consolidation
Private loan consolidation may allow you to combine multiple federal and private loans into one new loan, and may allow you to substantially reduce the interest rate you are currently paying, depending on your credit profile. However, it is important to understand that you will lose the extended deferment, forbearance, and repayment plan benefits of any federal loans you consolidate through a private lender.
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 or lower 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.
LIPP Assistance
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.