Federal Loan Consolidation
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Whether or not you should consolidate depends on your future educational and employment plans and the repayment provisions of your current loans. For in-depth information, we recommend this FAQ from Federal Student Aid. However, you may first want to review the outlined advantages and disadvantages of consolidation presented below. You can also learn more by watching Module 11: Federal Consolidation, part of the Financial Wellness @ Penn “Understanding Student Loans” series.
Federal Loan Consolidation Overview
Federal Loan Consolidation involves taking out a new Consolidation Loan to pay off existing federal loans (i.e., Federal Direct, Federal Direct Grad PLUS, Health Professions, Nursing Student). You may consolidate all or some of your federal loans.
The interest rate on a Federal Consolidation Loan is the weighted average of the interest rates on the loans being consolidated, rounded up to the nearest eighth of a percent.
Advantages of Federal Loan Consolidation
Consolidating allows you to receive a single monthly bill with a fixed interest rate for all of the loans you consolidate. Depending on the terms of your various loans, this might reduce your overall monthly payments by giving you a longer period of time to pay them off (up to 30 years).
If you have federal loans other than direct loans, consolidating into a Federal Consolidation Loan may make you eligible for income-based repayment options or Public Service Loan Forgiveness, assuming you meet the other eligibility criteria.
Disadvantages of Federal Loan Consolidation
Consolidating your loans will generally extend the lifetime of your payments, leading you to have pay less each month, but likely pay more in interest over time.
When you take out a Federal Consolidation Loan, your existing loans are paid off and disappear, so you will lose any specific benefits associated with those pre-existing loans. For instance, if you are already making qualifying payments on a Direct Loan toward Public Service Loan Forgiveness, consolidating those loans will cause you to lose credit for those payments.
Finally, consolidated loans begin repayment 60 days after they are disbursed. If any of your current loans are in their grace period, you may want to wait to consolidate until the end of your grace period.
How to Consolidate
Apply for a Federal Direct Consolidation Loan online at Federal Student Aid.