Loan Consolidation

  • To finance your college education, you may find it necessary to borrow from more than one loan source or lender, resulting in the financial burden of multiple monthly payments. After you graduate or are no longer enrolled at least half-time, you may want to consider consolidating your loans--a process by which an approved agency pays off your existing loans and creates one new loan. In some cases, loan consolidation can be a practical student debt management tool. However, consolidation is not the best option for everyone. Keep in mind that you may lose deferment privileges and pay back more in interest over time.

    Private Alternative Student Loans:

    • Alternative lenders may require you to be in active repayment before you can apply.
    • Ask private lenders about possible consolidation loan fees or other costs before you apply.
    • Most lenders do not consolidate federal loans together with private loans.

    To determine the interest rate, loan consolidation agencies weight the average of all the loans included in the consolidation, rounded up to the nearest 1/8 of a percent.

    Typically, borrowers may prepay all or part of consolidation loans at any time without penalty.

    Fast Choice can help you shop for loan consolidation products offered by private lenders.

    Loan Consolidation Basics

    Federal and private consolidation loans allow you to reduce your monthly student loan payments by extending your repayment terms and may allow you to obtain a better, fixed interest rate. When you consolidate, your consolidation loan lender pays the outstanding balances on the loans you consolidate. In essence, you refinance your education debts.

    Federal Student Loans:

    Consolidation is available to most borrowers of federally funded educational loans including:

    •   Federal Direct Stafford Loan (subsidized and unsubsidized)
    •   Federal Perkins Loan  
    •   Federal Direct Parent Plus Loan  (Parent Loan)

    Federal consolidation loans have no fees. To qualify for federal loan consolidation, borrowers must:

    • Be in their grace period, or currently repaying their educational loans
    • Not be more than ninety days delinquent on educational loan payments.

    For more information contact:

    Federal Direct Consolidation Loans Information Center (1-800-557-7392)


    Advantages and Disadvantages of Loan Consolidation


    Offers a fixed interest rate.

    Reduces monthly payment by extending the loan term.

    May result in fewer bills to handle.

    May offer various repayment options available including:

    •  Standard Repayment--you pay a fixed amount each month until your loan is paid in full.
    •  Extended Repayment--allows you to extend loan repayment over a period of ten to thirty years, depending on your loan amount.
    •  Graduated Repayment--allows you to make smaller payments at first, and larger payments later. This is a good strategy for students who cannot make large payments immediately after graduation. Payments start low and increase every few years.
    •  Income Contingent Repayment--your monthly payment is based on your yearly income, family size, and loan amount. Your payments rise and fall with your income. After 25 years, any remaining balance on the loan is forgiven, however you may have to pay taxes on the amount forgiven. Payments can never exceed 20% of your discretionary income.

    Most consolidation loan programs do not have prepayment penalties. Prepayment on your loan will reduce your overall interest costs by paying the loan off early.


    You may lose deferment options.

    You will pay more interest over time due to the extended repayment period (unless you are able to prepay or make additional payments on your loan).

    You may lose payback benefits from current lenders (i.e., interest rate reductions for submitting on-time payments).

    Loan Consolidation Agencies

    Federal Student Loans:

    At this time, the most stable consolidation option for federal student loans is through the Federal Direct Loan Program. You may also want to contact your lender or servicer to discuss other repayment options. If you do not know your lender(s), access your federal loan information through the National Student Loan Data System.

    Private Alternative Student Loans:

    The following are lenders who currently offer alternative loan consolidation. You may also want to contact your private alternative lender, if not listed, to find out if they also offer a consolidation loan. Carefully review the terms and conditions associated with each loan program before you apply. Keep in mind that most lenders do not consolidate private loans together with federal loans.

    For more information on Private Alternative Loan Consolidation visit Fast Choice.

    Cedar Education Lending

    Citizens Bank

    Great Lakes

    Wells Fargo

    For more information on consolidation, access the following Web sites: