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Student Loan Consolidation

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A Consolidation loan allows you to combine one or more of your federal education loans into a new loan that offers you several advantages such as one monthly payment, flexible repayment options, and reduced monthly payments. Although there are many options for students to repay their student loan debt, consolidating loans with various amounts and interest rates into one loan may reduce the minimum monthly student loan payment.

When considering consolidation of student loans, borrowers should be aware that federal student loan interest rates are subject to change every July 1. The Direct Loan rate as of July 1, 2012 will be a fixed rate of 3.4 percent for subsidized and 6.8 percent for unsubsidized loans issued after July 1, 2012. Variable rate loans issued earlier, but after July 1, 1998, will generally be at 5.3% if in repayment. Through consolidation, you can lock in your current rate for the life of your loan.

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. 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.

There are several factors to consider before you opt for consolidation such as:

• Where are you in loan repayment? Grace period?
• How many payments remain?
• How many payments remain?
• What is your interest rate? Is it variable?
• Are you having trouble managing your monthly payments?
• How many federal loans do you have?
• Are you willing to pay more for student loans in the long run in exchange for lower monthly payments?

The U.S. Department of Education offers guidance on student loan consolidation at http://www.studentaid.ed.gov/repay-loans/consolidation. To see Direct Loan-specific consolidation information, go to the Direct Loan Web page.

To find out if consolidation is right for you, or if you have any questions about consolidation loans please call Direct Loan Consolidation at 800/557-7392 or by visiting http://www.loanconsolidation.ed.gov/index.html. Sallie Mae serviced most Stafford Loans for USI students prior to 2005. Their toll free number is 888/272-5543.

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.