Loan Consolidation Frequently Asked Questions

Q: What is loan consolidation?

A: Loan consolidation allows you to combine all of your eligible student loans into one loan. That way there is one loan, one lender, and one monthly payment with a fixed interest rate.


Q: Are there any other advantages to loan consolidation?

A: Yes. You can reduce your monthly payment amount by choosing a repayment plan with a longer repayment period for higher balance loans. If you consolidate while a loan is in an in-school or grace period status, you may benefit from a lower fixed interest rate. In-school consolidation is only available through Direct Consolidation Loans.



Q: Are there any disadvantages to consolidation loans?

A: If you extend the length of your repayment through a consolidation loan, you will pay more interest over the life of your loan since you will be making payments (principal plus interest) over a longer period of time. Also, consolidation loans have fewer payment deferment options than some underlying loans. If you qualify for one of the many loan forgiveness options under some loan programs, such as Perkins loans, you should probably not include those loans in your consolidation. Contact your lender for more information.



Q: What is the interest rate on consolidation loans?

A: The interest rate on consolidation loans is calculated by taking the weighted average of the interest rates of the loans being consolidated, rounded up to the nearest 1/8 percent. This rate is fixed for the life of the loan.


Q: Can I consolidate loans with my spouse's loans?

A: It is possible to consolidate loans with your spouse; however, there are some facts to consider before making a spousal consolidation loan. Under a spousal consolidation loan (combining the loans of a married couple into a single consolidation loan), both the husband and wife are legally responsible for repaying the loan. This joint legal responsibility for repaying a spousal consolidation loan can result in difficult and unfortunate situations, especially if the couple divorces.



Q: Which loans are eligible for consolidation?

A: You can consolidate the following: Federal Direct Subsidized and Unsubsidized Loans, Federal Subsidized and Unsubsidized Stafford Loans, Federal Perkins, Federal Insured Student Loans, Federal HEAL, Health Profession Student Loans, Loans for Disadvantaged Students, National Defense Student Loans, National Direct Student Loans, Nursing Student Loans, Federal SLS, Federal ALAS, Federal PLUS, and Federal Consolidation Loans.



Q: When does consolidation repayment begin?

A: Normally, your first payment is due 60 days after your consolidation loan is originated. However, consolidation can be a lengthy process, particularly if you have loans held by several different lenders. You must continue to make any required payments on your existing student loans until consolidation is completed.

Borrowers who are eligible for an in-school consolidation loan with Direct Loans will begin repayment after their six month grace period expires.



Q: What repayment options are available?

A: First you should check with your lender to see what is available. For most lenders, you have four options: a level repayment plan with equal monthly installments, a graduated repayment plan with smaller monthly payments in early years and increasing payments in later years, an income-sensitive repayment plan with payments adjusted annually based on your income, or an extended payment plan, if available.



Q: How long will my repayment period be under a consolidation loan?

A: It depends on the amount of your student loan indebtedness. The more you owe the longer the repayment period. It can vary from 10 years to 30 years. Check with the lender for more specific information.



Q: What deferments are available?

A: Most lenders offer education-related deferments, unemployment deferments or economic hardship deferments. Check with the lender for more specific information.



Q: How do I decide if it makes sense for me to consolidate?

A: Since everyone's situation is different, there is no single answer to this question. You may contact your MU Financial Aid Advisor or your current lender(s) to help you with this decision. Questions you should ask yourself are:
• Can you afford your current loan payment?
• How much are you willing to pay over the long term?
• What is the current interest rate on your loans?
• What deferment options are available with my loans?
• What repayment benefits are available with my lender(s)?



Q: How do I find an application?

A: You should contact your lender for an application. Many lenders offer interactive applications on their web sites or you may be able to download an application. Make sure you do research on each of your lenders to find the best option for you.