When considering consolidation, consult with more than one lender to determine its real cost and advantages as compared with maintaining separate loans. It may be helpful to ask the following questions:

• How would consolidation affect my grace period and/or deferment options?

• How would the interest rate on a consolidation loan compare with the individual interest rates on my separate loans?

• How does the interest capitalization policy on a consolidation loan compare with that of my original loans?

• Will I lose or gain interest rate caps?

• Will smaller payments and/or the convenience of repaying fewer loans reduce the chances that I will become delinquent or default on my student loans?

• Are there repayment options available under consolidation that are valuable to me and that are not available otherwise?

Who can apply for consolidation:

•   Borrowers who are in their grace period or already in repayment on each loan chosen for consolidation.  

•  Borrowers who have more than one loan to consolidate.

•  Borrowers who are seriously delinquent or in default may be eligible to consolidation.

Repayment Period: You can extend your the Repayment period up to 30 years depending upon the loan amount. You may also be able to secure a lower fixed interest rate for the life of the loan.

Interest Rate: The interest rate is determined by using the weighted average interest rate. The outstanding balance for each loan is multiplied by the current interest rate, the results are then added up and divided by the total balance of all loans. This amount is rounded up to the nearest 1/8%. The rate will not exceed 8.25%.

Here are the types of loan that can be consolidated:

• Federal Stafford (subsidized and unsubsidized)

• Federal PLUS

• Federal Supplemental Loans for Students (SLS)

• Federal Consolidation

• Federal Direct Student Loans (FDSL)

• Federal Insured Student Loans (FISL)

• Federal Perkins Loans

• Health Professions Student Loans (HPSL), including Loans for Disadvantaged Students (LDS)

• Federal Nursing Student Loans (NSL)

• Health Education Assistance Loans (HEAL)

Federal loans may be consolidated through either the Federal Direct Loan Program (whereby funds are borrowed directly through the federal government without a private bank as intermediary) or through a Private Participating Lender. In either case, the consolidation is considered a federal loan.

You can get a Direct Consolidation Loan, available from ED, or a Federal (FFEL) Consolidation Loan, available from participating FFEL lenders. Under either program, the loan holder pays off the existing loans and makes one Consolidation Loan to replace them. If you have subsidized and unsubsidized loans, they’ll be grouped accordingly when you consolidate so you won’t lose your interest subsidy on the subsidized loans.

Three categories are available of Direct Consolidation Loans: Direct Subsidized Consolidation Loans, Direct Unsubsidized Consolidation Loans, and Direct PLUS Consolidation Loans. If you have loans from more than one category, you still have only one Direct Consolidation Loan and make only one monthly payment.

Under the FFEL Program, you can receive a Subsidized and/or an Unsubsidized FFEL Consolidation Loan, depending on the types of loans you're consolidating. (FFEL PLUS Consolidation Loans are included under the Unsubsidized FFEL Consolidation Loan category.)

Once made, consolidation loans can’t be unmade (but you can reconsolidate) because the loans that were consolidated have been paid off and no longer exist. So, take the time to study your consolidation options before you apply.                                                                                                             Back

2.Deferment: 

A student loan deferment is an authorized temporary suspension of your regular loan payments that is granted under certain circumstances. Loans in the Federal Family Education Loan Program (FFELP) allow for deferment in a wide variety of circumstances. A significant number of private loans also allow deferment for several possible reasons. Sometimes deferment may be automatically applied on your behalf, but in most cases you must apply, meet the qualifications, and make arrangements with the servicer of your loans to receive deferment.

If you have a subsidized federal stafford loan  or a federal perkins loan or a subsidized direct stafford loan an added benefit is that you are not required to pay the accrued interest during any approved periods of deferment. , the government will pay the interest on your loan.

During deferment period, interest  continues to accure on your loans. This interest will be added to the amount you owe and must be repaid when payments resume. The only exception is for subsidized stafford loans. The federal government pays the interest if students qualify for deferment.

Deferments are granted for specific situations and have certain time limitations and conditions for eligibility. In general, deferments are granted for:

• Enrollment in school
• Study in a graduate fellowship program
• Rehabilitation training program for disabled individuals
• Unemployment
• Economic hardship.

Remember, it's important to continue to make your payments until the deferment is granted. it takes a while to process. So, don’t skip the next payment when it’s due. First, check with the loan holder. If your deferment has not been processed, make your payment! You might go into default otherwise. You can’t get any deferment on a defaulted loan.

In most cases, you aren’t just granted a deferment automatically; you must formally request one through the procedures your loan holder has established. Often, you need to complete a deferment form. You’ll need to provide documentation showing you’re qualified for the deferment you’re applying for.                                                                          Back

3. Forbearance:

If you are in temporary financial difficulty forbearance is another way to extend the time you have to repay your loan. It allows you to temporarily lower or postpone your payments. Your loan holder may grant forbearance if you are willing but temporarily unable to make full or partial payments and do not qualify for a deferment.

During forbearance, interest continues to accrue on all loan types, though you may not be required to make interest payments. If you do not pay the interest, your loan holder will add it to your principal balance when your forbearance ends. This increases your total debt.

most forms of forbearance are offered at the discretion of the lender or owner of your loans. While all loans in the Federal Family Education Loan Program (FFELP) and a significant number of private loans allow forbearance in a wide variety of circumstances, it is not granted automatically nor is it guaranteed. You must apply, meet the qualifications, and make arrangements with the servicer of your loans. You might be granted forbearance if you are

• unable to pay due to poor health or other unforeseen personal problems.
• serving in a medical or dental internship or residency.
• serving in a position under the National Community Service Trust Act of 1993 (forbearance can be granted for this reason for a Direct or FFEL Stafford Loan, but not for a PLUS Loan).
• obligated to make payments on certain federal student loans that are equal to or greater than 20 percent of your monthly gross income.

A forbearance is granted in increments for up to one year. Because it is  granted for 12 months at a time so borrowers must reapply each year.

Unlike deferment, which you’re entitled to receive, the loan holder does not have to grant forbearance except in certain mandatory circumstances. Mandatory forbearance is an option for those whose loan is not in default.                                                                                                     Back