Acquiring Consolidation Loans for Student Debts

When paying back student loans, some students may choose a consolidation loan. Consolidation loans combine student loans into 1 larger loan paid to a single lender. That 1 loan is used to pay off all the other loans. Consolidation loans are available for most federal student loans and many private lenders offer private consolidation loans.

Debt Consolidation in General

When you decide to consolidate your debt, it means you take out one loan to pay off the others.  Often, this is done to obtain a lower interest rate, get a fixed interest rate, or for convenience purposes.

Student Loan Consolidation

In general, there is no cost to consolidate student loans aside from the small interest rate increase. Students (and parent borrowers) can consolidate student loans (separately). In July 2006, Congress repealed a provision of the Higher Education Reconciliation Act concerning married students. Now, married students cannot consolidate their loans together. Students can consolidate their student loans only during the grace period or after they have begun the repayment period (you cannot consolidate while you are still in school).

Student loans can be consolidated with any lender. This permits students and parents to find the lowest interest rate and best discounts. In most instances, lenders will require you to have a minimum balance before consolidating your loans.  All federal student loans can be consolidated. However, there are some restrictions on student loan consolidation. You can only consolidate a consolidation loan one time. To reconsolidate a consolidation loan, you have to add additional loans that were not already consolidated with that initial consolidation loan. Overall, you will usually only consolidate your loans once, either at the end of the grace period or after you have begun repaying; typically, you will be locked into that loan, with that lender, until you have repaid the entire amount.

Consolidation loans have various repayment plans in addition to the standard 10-year plan. Included are the extended repayment plan, graduated plan, income contingent repayment, and income sensitive plan. Generally, student consolidation loans reduce monthly payments and extend the number of years to repay the loan; but keep in mind that the extended repayment period means that there will be more interest added to the life of the loan. Unless you qualify for a deferment or forbearance, repayment on student consolidation loans begins within 60 days of the loan’s disbursement.

Importance of Speaking with an Attorney or Financial Counselor

If you would like more information regarding student loan debt consolidation, contact a qualified attorney, financial counselor, or your loan provider for assistance.