If you want to make only one student loan payment per month, loan consolidation is available for both federal and private loans.
When you apply for consolidation, you are applying for a brand new loan which pays off all other loans. Direct Loan consolidations can be completed on-line or over the phone.
An application for Direct Loan Consolidation requires that you put down two references in the event that the lender or the Department of Education cannot find you. These references do not act as cosigners.
If you are in default on your federal loan(s), you can consolidate out of default. If you want private loan consolidation, you will probably need good credit.
For federal student loans, if you are in your first year of repayment, the Alternative Documentation of Income form is also required. If you are in your second year of repayment or the IRS is unable to provide information on your income to your loan servicer or the Department of Education, the Alternative Documentation of Income form will also be required.
If you are a Direct Loan borrower, you may choose to file the Alternative Documentation of Income form if your tax return doesn’t reflect your current income.
If you are on Public Assistance, you may want to file the Alternative Documentation of Income form along with copies of the food stamps or other assistance received.
If you are on the older FFEL Program, you may choose to file the Alternative Documentation of Income form if your tax return doesn’t reflect your current income or your ability to repay.
By consolidating and reducing your monthly payment amount, the number of payments including interest can increase. Direct Loan Consolidations have repayment periods of up to 30 years, depending on the amount of the loan.
After you submit your loan consolidation paperwork, the Department of Education will send you a summary sheet about your new consolidation loan and then pay off your loans within 10 days, typically.
The Department of Eduction’s summary sheet will also inform you of your repayment plan, if you selected income-based or income-contingent repayment (or another repayment plan) on your Direct Consolidation Loan application.
The new interest rate is the average among the loans which were combined, not more than 8.5%. The following loans can be consolidated:
- Federal loans
- Stafford Loans
- Perkins Loans
- Direct PLUS Loans
- Supplemental Loans
- Other Federal Loans
You will have 180 days to add (fold in) any new Direct Loan to a consolidated loan.
If you want to apply for the Income-Based Repayment (IBR) plan, do not include any Parent PLUS loans in a Direct Consolidation Loan.
If you are confused when you receive your first Direct Consolidation Loan billing statement, it could be because the Department of Education may not have correctly calculated and updated your Income-Based or Income-Contingent Repayment amount.
One option is to apply for a deferment or forbearance right away. Once the Department of Education has provided you with the proper repayment amount, you should be able to begin making payments again, depending on your situation. Be sure that the deferment or forbearance is approved prior to your first consolidation loan payment date, otherwise you will be late on your very first payment!
This deferment/forbearance strategy (which buys time for the Department of Education to update the correct reduced repayment/monthly billing amount under an approved Income-Based or Income-Contingent repayment plan) keeps you from paying more than the required amount so that you can get the maximum amount of loan forgiveness (after 10, 20 or 25 years of regular, reduced payments).
For borrowers who are consolidating (but not participating in an Income-Based or Income-Contingent repayment plan), deferment of forbearance forces the Department of Education to get you the correct billing amount before you make any payments at all on your new consolidated loan. Contact the admin at myedaccount.org if you need assistance with special repayment plans or consolidation.