Borrowers with federal student loans may choose to consolidate their loans to get a single payment and extend their repayment period. However, borrowers should question those offering to consolidate their loans regarding benefits they could lose with a consolidated loan. One example of lost benefits would be loan forgiveness provisions for certain teachers. If a teacher has already consolidated his or her loans, the loan forgiveness provisions for teaching in low-income school districts may not apply.

The lower interest rate occurs because the interest rates on federal student loans certified prior to July 1, 2006, are variable, but the interest rate on a federal consolidated loan is a fixed rate and locked in for the life of the loan. Interest rates on variable rate federal Stafford loans are recalculated annually each July 1, and fluctuate with the rate of short-term federal securities.  To obtain an estimate of your consolidated loan interest rate, see the Direct Consolidation Loan Calculator. 

Federal Regulations state that the interest rate on a Federal Consolidation Loan disbursed on or after July 1, 1994 shall be the weighted average of the interest rates on the loans consolidated, rounded upward to the nearest whole percent. If you have student loans that were disbursed before July 1, 1998, your consolidation rate could be higher than the rate listed in the first paragraph. If the amount of the Federal Consolidation Loan is less than $7,500, the borrower's repayment schedule may not exceed 10 years.

If you must consolidate, the best time is during your grace period. This will ensure the lowest possible interest rate. To avoid losing any portion of your grace period, enter the grace period end date on the federal consolidation loan application. Don't forget to ask if you will lose any loan forgiveness provisions available to Stafford Loan borrowers.

Any questions about loan consolidation loan can be answered by your lender's agent. Sallie Mae serviced most Stafford Loans for USI students prior to 2005. Their toll free number is 888/272-5543. Information on Sallie Mae Loan Consolidation is also available on the Web.  If you have the newer Direct Loans (or both Direct and private lender Stafford Loans), you can also look at what the federal government offers.  Information on Direct Loan Consolidation is available at 800/557-7392.

You can also access your loan history with your federal student aid PIN at Student Access to the National Student Loan Data System.  If you cannot determine who services your Stafford Loan, contact the U.S. Dept. of Education Student Financial Assistance Ombudsman for help. The Ombudsman Customer Service Line is 1-877-557-2575.

The U.S. Department of Education offers guidance on student loan consolidation at Federal Stafford Loan Consolidation Information. To see Direct Loan-specific Consolidation information, go to the Direct Loan Web page.

Additional Guidance from Sallie Mae
Today, many borrowers are expressing confusion over whom they should choose as their student loan consolidator. The confusion leads to frustration due to the excessive volume of marketing communications the borrowers are receiving. All too often, the messages are conflicting and sometimes unreliable.

If a marketing communication or the telemarketer does not provide the answer to these questions, then borrowers should continue to search for a reputable, trusted lender who does answer these questions. Financial aid professionals recommend that borrowers get all the facts before consolidating and begin by contacting their existing lender or loan servicer. Remember, other than financing a home, student loan consolidation is likely to be the largest financial decision a borrower makes. For more information on Sallie Mae loan consolidation see SmartLoan.com or call 800/448-3533. After reviewing the Sallie Mae's information, please use the back button on your browser to return to the USI web site.

Other Points of View
For a conservative perspective on loan consolidation see The College Financing Guide. The Access Group, a private lender that offers consolidation loans, provides a Web page that lists helpful information on consolidation.