FAQ: About Loan Consolidation
What is a consolidation loan?
A consolidation loan allows borrowers to take several federal education loans with different repayment terms and interest rates, and combine them together to form one loan. The new loan will have only one payment per month.
What is the interest rate on a consolidation loan?
The rate for a consolidated loan is fixed for the entire time the loan is being repaid. The rate is calculated based on a weighted average of the interest rates on the loans being consolidated and is rounded up to the nearest 1/8 of a percent. This rate may be lower than some of the interest rates on the loans being consolidated. The interest rate will never exceed 8.25 percent.
Am I eligible for a consolidation loan?
To qualify for a consolidation loan, borrowers must have at least one Direct Loan or Federal Family Education Loan (FFEL) that is in grace, repayment, or deferment status. Borrowers can consolidate most defaulted education loans if they make satisfactory repayment arrangements with the current loan holder(s) or agree to repay their new consolidation loan under the Income Contingent Repayment (ICR) Plan.
How do I consolidate my loans?
Go to http://www.loanconsolidation.ed.gov to learn more about the consolidation process and to apply for a consolidation loan. The website also contains information about the new Income-Based Repayment (IBR) Plan, which is one of several consolidation repayment plans.