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Consolidating your federal student loans into a Direct Loan can give you access to various income-driven repayment plans and Public Service Loan Forgiveness (PSLF) opportunities.
However, federal student loan consolidation isn’t quite the same as going the private route. Only certain types of loans are eligible to consolidate, and various rules and regulations apply.
Knowing which public loans qualify for consolidation and how to go about it can save you money in the long run.
Which loans are eligible for federal student loan consolidation?
Several federal student loans can be consolidated, including:
- Subsidized and unsubsidized Direct Loans
- PLUS Loans (Grad and Parent)
- Perkins Loans
- Federal Nursing Loans
- Health Education Assistance Loans
If you want access to income-based repayment plans, where you can calculate your monthly loan balance according to the amount of money you earn, your newly consolidated Direct Loan will qualify.
A federal consolidated loan is also necessary to sign up for PSLF. This program forgives all student loan debt after 120 repayments for people working in eligible jobs in the public service or nonprofit sectors.
Keep in mind, federal student loan consolidation isn’t quite the same as private loan consolidation, especially with interest rates.
Even though federal rates are capped, borrowers may receive a higher interest rate on their consolidated loan than on their previous loans. That’s because the new Direct Loan will have a weighted APR. Your payments, however, may be lower since the new loan’s life is extended.
How are FFEL loans affected by Direct Loan consolidation?
Federal student loan consolidation can be convenient. However, for some loans that combine public and private loan elements, it can get tricky.
If you have a Federal Family Education Loan (FFEL), federal student loan consolidation can affect your repayment and loan forgiveness status. You may lose some FFEL benefits as well.
What’s more, FFEL loans are basically defunct now. They were private loans with federal backing that were no longer offered in 2010 when Direct Loans were introduced. Unfortunately, some FFEL features didn’t transition into the Direct Loans lending process.
Keep in mind, FFEL loans won’t qualify for loan forgiveness their own. So if you’re still paying off an active FFEL balance pre-2010, you’ll need to consolidate to a Direct Loan if you want to qualify for loan forgiveness.
However, none of the payments you’ve made under an existing FFEL loan repayment will count towards the 120 timely payments needed for full loan forgiveness. After you consolidate your FFEL into a Direct Loan, the number of “timely” payments you’ve made will start from zero.
Depending on the private lender who granted your FFEL loan, certain benefits, discounts or other perks attached to your loan may be lost after consolidating to a Direct Loan. Examine your options to see if these are something you’d like to give up if you’re close to paying off your loan balance.
Should you go for Direct Loan consolidation?
Here are some questions you should ask yourself if you’re considering consolidating several federal loans into one Direct Loan.
Will you be happy paying more interest?
A Direct Loan won’t carry the lowest interest rate of one of the loans you’re consolidating. It won’t even be an average percentage. It’ll be weighted or rounded. This could add on about 0.125% in interest.
Can you reasonably aim for forgiveness with an FFEL loan?
If you make 120 timely payments on your consolidated Direct Loan, you qualify for forgiveness. One payment each month equates to about 10 years of payments until your balance is eliminated.
If you had an FFEL loan, that may mean making extra payments on top of the ones you’ve already made in order to fulfill this requirement.
Should you go for all, some or nothing?
You don’t need to consolidate all of your federal loans.
Examine the ones that are harder to manage, set a budget, and take advantage of using a loan calculator to estimate what your consolidated Direct Loan payments will look like.
Can federal student loan consolidation help your debt?
Loan consolidation is technically like a reboot of your active loans. Doing so can get one or more loans out of default, saving you from falling further into debt and ruining your credit.
However, remember that federal student loan consolidation can add several collection fees to your balance. Borrowers should carefully ask themselves if this is a price they’re willing to pay to get out of default.
If you still have other questions about your loans and federal consolidation, visit your account in the National Student Loan Database. Or, contact your lenders for more information, especially if you have an FFEL loan and want to proceed with consolidating it the right way.
If you’d like to consolidate your federal student loans, click the button below to get started.
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 5.87% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 5.87% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
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2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
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|2.51% – 8.03%4||Undergrad & Graduate||Visit Lendkey|
|2.48% – 6.25%5||Undergrad & Graduate||Visit CommonBond|
|2.57% – 8.17%6||Undergrad & Graduate||Visit Citizens|