If you have used up all your available deferments and forbearances, consolidation may work for you. Not only can consolidation lower your monthly payments, it restarts the clock for all deferments and it restarts the clock for all deferments and forbearances – thus postponing when you must begin repaying your student loans. For example, if you have already used three (3) years of deferments and three years (3) of forbearances for a particular set of loans, by consolidating them into one loan, you can get up to three (3) more years of forbearances.
Consolidation allows you to simplify the repayment process by combining several types of federal education loans into one loan, thereby making just one payment each month. Also, that new monthly payment might be lower than what you’re currently paying because interest rates may be lower and repayment time has been extended from 10 to 30 years. Consolidated loans are available from private lenders (Federal Family Education Loan, FFEL) or Direct Consolidation Loan Program offered by the Department of Education.
You may want to consider consolidation if:
- You have used up all your deferments and forbearances, don’t qualify for any of the low payment plans, and cannot afford your monthly payment.
- You want a lower interest rate even though you can afford your current repayment plan.
Your loans are in default. Under the Direct Consolidation Loan Program, loans that are in default may be consolidated with the government. Loans in default with private lenders may be consolidated, but with greater effort. Often, with private lenders, you must make 3 consecutive months of payments before they will consider allowing your loans to be consolidated.
You may think getting a loan consolidation is a no brainer since it usually results in lower interest rate loan with lower payments. However, there are some details that may change your mind.
- First, like all low-payment plans, extending payments over a much longer time results in much more money being paid in interest. Thus, the loan cost more over its lifetime – often times 2 to 3 times greater.
- Second, if you are married, you can consolidate your loans jointly but only if both you and your spouse agree to repayment of the entire loan – even if you divorce. That seems unwise considering most couples divorce within five years of marriage. Further, if you consolidate jointly and one of you dies, the surviving spouse is still responsible for repayment on the entire consolidated loan; unlike if the loans are separate and one person dies, then his or her loans are canceled.
Once made, consolidation loans can’t be unmade because the loans that were consolidated have been paid off and no longer exist. Contact the Department of Education for requirements concerning consolidation. For plan details contact the Direct Loan Origination Center’s Consolidation Department. You can reach them by calling 1-800-557-7392 or visit http://www.loanconsolidation.ed.gov
