Your Student Loan. Consolidating Your Student Loan Debt

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1 Your Student Loan Consolidating Your Student Loan Debt

2 If you re currently paying back student loans, you ve probably received multiple phone calls, letters, and s about consolidating those loans with one lender or servicer. The information provided here may help you understand more about consolidation and whether it s the best option for you. TG provides a call center at (800) with knowledgeable, friendly counselors who can review your situation and answer any questions you may have. And because TG is not a lender, we re coming from a neutral position we just want to help you understand your options and make an educated decision.

3 An overview of the Federal Consolidation Loan Program In recent years, interest rates on federal education loans have been dramatically low. As a result, many student loan borrowers are taking advantage of the Federal Consolidation Loan Program, which allows you to lock in the interest rate for the remainder of the repayment period, and combine multiple loan balances with a single lender so you only have to make one payment. Types of loans that may be consolidated The following types of loans may be included in a Federal Consolidation loan: Stafford PLUS SLS FISL Perkins (formerly National Student Defense Loans) Health Professions Student Loan (HPSL), including Loans for Disadvantaged Students (LDS) Nursing Student Loan (NSL) Health Education Assistance Loan (HEAL) 1

4 Interest rate considerations There's nothing that requires you to consolidate your loans after you leave school. It's a big decision that you should consider seriously. However, if you do decide to consolidate, you should keep in mind that it is best to consolidate at a time that will be most advantageous for you, particularly concerning your interest rates. Here are a few things to consider: The variable interest rates on federal education loans are adjusted annually on July 1 and remain in effect through the following June 30. Interest rates for each year are announced in May, giving you a chance to see if they will increase or decrease. There are two levels of interest rates on Stafford loans. Interest rates are lower when you are in school, in your grace period (the six months after you leave school or fall below half-time enrollment before you have to start paying back your loans), or in periods of deferment. Interest rates are higher when you are in repayment. If you can consolidate when you are in your grace period or when you are in a deferment, you may save up to 0.6% on your interest rate. The interest rate on a Consolidation loan is determined by the weighted average of the interest rates on all of the loans being consolidated, rounded up to the nearest 1/8 of a percent. 2

5 Selecting a lender or servicer TG also recommends that you start by contacting the lender(s) or servicer(s) that hold your loan(s) to discuss consolidation. If all your loans are with one lender, you are required to consolidate with that lender, unless the lender does not make Consolidation loans or does not offer an incomesensitive repayment schedule. If you have your student loans with more than one lender, you can consolidate with any lender that participates in the program. You can find a list of consolidating lenders at (Families and Students/Lender Fact Sheets). If you decide to consolidate, you should keep in mind that it is best to consolidate at a time that will be most advantageous for you, particularly concerning your interest rates. 3

6 Extending your repayment term: Lower monthly payments, more interest overall With a Consolidation loan, the maximum length of your repayment period depends on the balance of your loan. It can go from 10 years to 30 years. By extending the time frame, your monthly payment may be lower, but this reduction in monthly payment may be minimal compared to the amount of interest you may add to your loan over the additional years. (Examples are provided on TG's consolidation payment chart, page 14.) As with any other federal education loan, you can prepay your Consolidation loan at any time without penalty. It's always smart to pay extra on your loan's principal whenever possible, because this will reduce the amount of interest you pay over the life of the loan. Contact your lender for more information about prepayment. For more information about Federal Consolidation loans, call TG's Customer Assistance team at (800) to review specific information about your loans and whether consolidation is a good option for you. Stretching your debt over a longer time means you ll pay more interest over the life of your loan. 4

7 FAQs on Federal Consolidation Loans Timing Issues I am about to graduate and I keep receiving solicitations from lenders saying that I should consolidate my Stafford loan debt. Do I have to decide right now? No, you should not feel pressured to consolidate. Generally, consolidation is a one-shot deal and you should consider your options carefully. If you do decide to consolidate, though, the timing of your decision may impact the interest rate you receive on your Consolidation loan. See "Interest rate considerations" in the overview section of this brochure for more information. Lender Issues If all of my loans are with one lender, do I have to consolidate with that lender? Generally, yes. If all of your FFELP loans are with one lender, you are required to consolidate with that lender unless your lender does not make Consolidation loans or does not offer an income-sensitive repayment schedule. If you have more than one FFELP lender, you can choose to consolidate with any lender that participates in the Federal Consolidation Loan Program. 5

8 I am a recent graduate looking to consolidate my student loans. I am currently trying to compile a list of all of my lenders. Where can I find this information? If TG guaranteed all of your loans, you can download a complete summary of your loans and lenders by using TG s Student Loan Inquiry, available on Adventures In Education at If some of your student loans were guaranteed by another guarantor or through the U.S. Department of Education, you can view a list by going to the National Student Loan Data System (NSLDS) web site at I recently received a letter from a company that offers loan consolidation. Is it safe to go through a company that solicits business by mail to consolidate? How did they get information about me? Many student loan lenders purchase your personal information in the form of marketing lists from schools and lenders, or obtain information from credit bureaus. These lenders would be happy to get your business, and many of them advertise by mail. Some of these lenders have participated in the student loan industry for many years, and some of them are new to the industry and may not have a long track record of service. If you have your student loans with more than one FFELP lender, then you can choose to consolidate with any lender that participates in the program. TG recommends, however, that you ask your current loan holders about consolidation first, before considering a lender you ve never worked with before. If you decide to go with a lender you've never done business with before, we also suggest that you do plenty of research first, and don t just rely on unsolicited information you receive by mail to make your decision. 6

9 Where can I find a list of lenders that consolidate? You can find a list of consolidating lenders at If you choose the For Families and Students section, and then choose Lender Fact Sheets, you can then search for lenders that offer consolidation. TG also recommends that you contact the lender or lenders that hold your loans to discuss consolidation. If all of your loans are with one lender, you are required to contact that lender first to inquire about consolidation. If you have more than one FFELP lender, you can choose to consolidate with any lender that participates in the FFEL Program. I currently have interest rate "deals" through my Stafford loan lender for on-time monthly payments and for having my payments debited from my bank account. Do these interest rate deals transfer if I decide to consolidate? Not necessarily. Ask your lender to see if these reductions will transfer to a Consolidation loan or if your lender offers similar Consolidation loan interest rate deals. Deferment Issues Can I consolidate during a deferment? Yes, you can consolidate during a period of deferment, and this enables you to lock in your Consolidation loan at the lower (in school, grace, and deferment) interest rate. If you consolidate during an in-school deferment, however, keep something in mind. You can only include loans that have been fully disbursed in your Consolidation loan. So any future loans that you intend to take out while continuing your education will have to be repaid separately, which may somewhat complicate your repayment process. 7

10 Underlying Loan Issues Is there a minimum balance required to get a Consolidation loan? Lenders are permitted to set minimum balance policies, but the amount varies from lender to lender. Can I consolidate private loans with federal loans? If so, are the interest rates the same as the ones for the federal loans? Private, or alternative, loans cannot be consolidated into a Federal Consolidation loan. However, if you do decide to take out a Federal Consolidation loan, your lender will consider your total education loan debt when determining the maximum length of your repayment period under the Consolidation loan. Talk to your lender for more information. I have a Perkins loan in addition to my Stafford loans. Should I consolidate these together? It s your decision, but make sure you think it out before taking this step. Perkins and Stafford loans have different interest rates, and since a Consolidation loan s interest rate is the weighted average of the interest rates on the underlying loans, rounded up to the nearest 1/8 of a percent, you should calculate the weighted average and see for yourself if consolidating the Perkins and Stafford loans would result in a favorable interest rate. Mapping Your Future, a public service web site co-sponsored by TG and other guarantors, has a Loan Consolidator Worksheet (on that can calculate this interest rate for you. One other factor to keep in mind is that Perkins loans may lose certain borrower benefits if they are rolled into a Consolidation loan. For example, you may lose certain loan cancellation or deferment benefits. Talk to your school (the holder of your Perkins loan) for more information. 8

11 Do I lose any borrower benefits for Stafford loans, such as deferment options, if I consolidate? Consolidation loans may not have all of the deferment options that Stafford loans do. However, the deferment options most frequently used by borrowers (the in-school deferment, unemployment deferment, and economic hardship deferment) are also available for Consolidation loans. If I already have a Consolidation loan, can I reconsolidate to lock in the new low interest rate? You cannot reconsolidate an existing Consolidation loan by itself. You can consolidate again, but only in the following instances: If you obtain a new eligible loan after the date the original Consolidation loan was made, or If you consolidate your original Consolidation loan with at least one other eligible loan not included in the original loan. If you do obtain a new Consolidation loan, however, keep in mind that its interest rate will be the weighted average of the loans being consolidated. The interest rate on the original Consolidation loan is no longer variable, and still carries the same fixed interest rate it had when you obtained it. Unless the outstanding loan (that is, the loan that is not part of the original Consolidation loan) has a significantly high principal with a significantly low interest rate, the interest rate on the new Consolidation loan will not be much different from the original Consolidation loan s rate. 9

12 Repayment Issues I have a high loan balance and I know that I have the option, if I consolidate, to extend my repayment period to lower my monthly payment. Are there any disadvantages to doing this? Yes. One very notable disadvantage to extending your repayment period is that you will pay more interest over the life of your loan. As a matter of fact, the reduction in your monthly payment may be minimal compared to the amount of interest you may add to your loan, which may be rather dramatic. So it s important not to be tempted to take a longer repayment period if you can afford the monthly payments at the shorter repayment period. You ll save more money in the long run. Maximum repayment periods for Consolidation Loans Sum of Consolidation loan Maximum balance plus balances of repayment other education loans period* Less than $7, years $7,500 or more, but less than $10, years $10,000 or more, but less than $20, years $20,000 or more, but less than $40, years $40,000 or more, but less than $60, years $60,000 or more 30 years *Maximum repayment periods exclude authorized periods of deferment and forbearance. 10

13 I know that I will wind up paying more interest over the life of my loan, but I really need to lengthen my repayment period so that I can reduce my monthly payments. If I consolidate, how long can I take to pay off my loan? The maximum length of your repayment period depends on the balance of your Consolidation loan and any other education loans you hold. It can go from 10 years to 30 years depending on your balance. Remember, however, that you don t have to take the maximum repayment period to repay your loan. You can decide to take less time than the maximum, and doing so will save you at least some of the interest you will add to your balance by lengthening your repayment period. Can I prepay my Consolidation loan at any time? Yes, you can prepay your Consolidation loan at any time without penalty, just like any other FFELP loan. As a matter of fact, it is always smart to pay extra on your loan s principal whenever possible, because this will reduce the amount of interest you pay over the life of your loan. Contact your lender for more information about prepayment. Spousal Consolidation My spouse and I both have student loans. Can we consolidate together under one loan? Yes, spousal consolidation is permissible under the Federal Consolidation Loan Program. However, there are significant disadvantages to a spousal consolidation. The most notable disadvantage is that if you and your spouse divorce after obtaining a spousal Consolidation loan, you will both still be jointly liable for the entire debt, even if one spouse s loan debt was small and the other spouse s loan debt was large when you consolidated. The risks of a messy situation are too great to enter into a spousal consolidation. If you still want to consolidate, the best advice is for each of you to obtain separate Consolidation loans. 11

14 General information What questions should I ask my lender if I am considering consolidation? Make sure you ask your lender the following questions: What will my monthly balance be? How long will it take to pay off the balance? How much interest will I pay over the life of the loan? Would it be better for me to include all of my student loans or leave some out? Do you offer any interest rate reductions for automatic debit or for a certain number of on-time payments? Do I have to pay any fees to consolidate? No unlike the Stafford and PLUS Loan Programs which have loan fees, a borrower does not have to pay an origination fee or any other charges for obtaining a Consolidation loan. Is it ever financially unwise to consolidate? Generally, it s not a good idea to consolidate if you are close to paying off your student loans. Who can help me decide if consolidation is a good idea for me? You can contact your lender(s) or your school financial aid office for more information about consolidation. You can also do the math yourself! If you have multiple student loans at different interest rates and want to know what the interest rate would be for a Consolidation loan, there is a Loan Consolidator Worksheet at that can help you make that determination. 12

15 Then, if you want to know what your payments might be, use the repayment calculator available on TG s public service Web site at In addition, TG s Customer Assistance team is available to help just call toll-free: (800) ? Lower payments, larger payout is it worth it? With a Consolidation loan, you can extend your repayment period for up to 30 years (depending on your total loan debt), which can lower your monthly payment. However, the total amount you pay in interest over that extended period can really add up! TG has developed the following charts to illustrate how much more interest you ll pay in the long run if you extend your repayment period now. These charts show, based on sample debt amounts and allowable repayment lengths, what the monthly payment will be, but also what the total interest and total loan amount will be once the loan is paid in full. For the following repayment schedules, we used a fixed interest rate of 4%. If you want to estimate the repayment for your own situation, visit the loan repayment calculator on TG s public service Web site at Extending the length of your repayment can increase the total loan debt you ll have to repay. 13

16 If you consolidate $15,000 of student loan debt and repay it over Monthly Payment Total amount paid Total interest paid 10 years $ $18, $3, years $ $19, $4, years 30 years Not available for this loan amount Not available for this loan amount If you consolidate $30,000 of student loan debt and repay it over Monthly Payment Total amount paid Total interest paid 10 years $ $36, $6, years $ $39, $9, years $ $43, $13, years Not available for this loan amount If you consolidate $60,000 of student loan debt and repay it over Monthly Payment Total amount paid Total interest paid 10 years $ $72, $12, years $ $79, $19, years $ $87, $27, years $ $103, $43,

17 Keep it short So as you can see, relatively small reductions in monthly payments can have an enormous impact on the total loan debt you ll have to repay. If you consolidate, your best option if you can afford it is to request a shorter 10- year or 15-year repayment schedule. If you must request a longer repayment schedule to make your monthly payments more manageable, consider making an extra payment whenever possible to be applied directly to the principal. It makes smart financial sense! 15

18 Notes 16

19

20 About TG TG is a public, nonprofit corporation that administers the Federal Family Education Loan Program (FFELP), a federal government-sponsored program of low-interest loans to help families and students pay for education beyond high school. As a FFELP administrator, TG does not issue loans but guarantees loans. Much like securing an insurance policy for a home, guaranteeing a student loan protects the lender from possible loss if a borrower fails to or is unable to repay the loan. Because of the backing student loan guarantees provide, lenders more readily issue loans to borrowers for higher education. For more information about TG, visit To learn more about college and career planning, visit Adventures in Education at P.O. Box Round Rock, Texas (800)

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