Consolidation federal loans program student

Like the federal government, private companies offer the option to consolidate multiple student loans into one. But while you can't transfer private loans to the federal government , you can consolidate both federal and private loans with a private lender.

The goal with this process is not only to get the ease of a single payment, but to receive a lower interest rate based on your financial history. Use a consolidation calculator to compare monthly payments under three different scenarios: federal student loan consolidation, private student loan refinancing and income-driven repayment plans.

Consider federal consolidation if you:. Need to consolidate to be eligible for income-driven repayment or public service loan forgiveness. Are in student loan default and want to get back on track. When you consolidate federal loans, the government pays them off and replaces them with a direct consolidation loan. Consolidating your federal loans through the Department of Education is free; steer clear of companies that charge fees to consolidate them for you.

So, for instance: If the average comes to 6. Your repayment term will generally start within 60 days of when your consolidation loan is first disbursed and will be based on your total federal student loan balance, among other factors.

You should consolidate your federal loans if you want to make a single monthly payment or need to consolidate to qualify for programs like Public Service Loan Forgiveness. If you want to save money by lowering your interest rate, consider private loan consolidation — also known as refinancing. You can consolidate federal student loans with the Department of Education or a private lender, which is also called refinancing. If you refinance federal loans with a private lender, you'll lose access to government programs, like income-driven repayment and Public Service Loan Forgiveness.

You can consolidate federal student loans for free with the Department of Education at studentaid. If you want to consolidate — or refinance — your loans with a private lender, apply directly on the lender's website. Log in to studentloans. Enter which loans you do — and do not — want to consolidate. Choose a repayment plan. You can either get a repayment timeline based on your loan balance or pick one that ties payments to income. Read the terms before submitting the form online. Continue making student loan payments as usual until your servicer confirms consolidation is complete.

If your loans are in default, consolidation is one of a few methods to get your loans back on track. To consolidate defaulted loans you'll need to make three full, on-time consecutive monthly payments on the defaulted loan and agree to enroll in an income-driven repayment plan.

You can sign up for free on studentloans. Unlike consolidation, refinancing allows borrowers to lower interest rates, which can save money over the life of the loan. However, refinancing student loans with a private loan means that you will not be able to access federal loan protection, repayment options, or forgiveness programs.

If you consolidate qualifying loans by October 31, , prior payments may still qualify for the PSLF. Find full details of the action steps you must take on the Federal Student Aid website. Students who have graduated, dropped out of school, or stopped attending part-time less than half the time are eligible for consolidation of their federal student loans. There are no credit requirements for a federal student loan consolidation.

However, there are several other requirements that determine who can apply for a direct consolidation loan:. In contrast, private student loan refinancing has approval requirements similar to conventional loans. This makes it easy to log in, view your loan details and complete the consolidation and promissory note application, where you pledge to repay the loan.

The application process takes less than 30 minutes, and approval can take between 30 and 90 days, so you must continue to make your existing loan payments until your consolidation loan is disbursed. Follow these steps to consolidate your federal student loans:. Begin the integration process by logging on to StudentAid. Before beginning the consolidation process, gather the documents needed to complete the application and promissory note, including education loan records and personal income information.

If you complete the application online, you will have access to all of your federal loan details. You should also locate contact information for two references who have known you for at least three years, including a parent or legal guardian.

After collecting the necessary documents, complete the direct consolidation loan application and promissory note. This free application can be submitted online or in hard copy and includes the following sections:.

Check out this application demo for step-by-step instructions throughout the application process. After submitting your application, contact your selected consolidation service with any questions about the status of your application. Online applicants receive their service contact information at the end of the application process; Paper applicants receive it when they download or print their applications.

Generally, the loan approval process takes between 30 and 90 days, but this varies by provider. Once your application is approved, the lender will repay your existing loan balance with your direct consolidation loan. However, there will be a delay between your application and loan approval and when your original federal loans are paid off.

The reimbursement amount and schedule depends on the repayment plan selected during the application process. A loan service officer will contact you to inform you of your repayment schedule — and the date of your first payment — but borrowers generally have up to 60 days after disbursement of the loan to begin repayment.

Deferral, deferral, and IDR plans may be a good option if you are struggling to make your current monthly payments. However, if you want a lower interest rate — or want to consolidate private student loans — consider refinancing. All federal promissory notes provide that the loan or loans governed by the note must be administered in accordance with the Higher Education Act and Department of Education regulations. Under the servicing contracts, the Department of Education or other owner of the loan pays the servicer a monthly fee for each loan that the company services.

Income Driven Repayment Plans There are multiple repayment options for federal student loans. Because the standard repayment plan requires a complete payoff of the debt within a fixed period, the monthly payments can be high. To enroll in an IDR plan, the borrower must send an application and proof of income to her loan servicer. An IDR plan is effective for a one-year period.

To renew the plan for each subsequent year, borrowers must annually recertify their income by sending the loan servicer a new IDR application and proof of income before an annual renewal deadline. OMB Form No. On the other hand, if the borrower timely submits the IDR renewal application and proof of income, the loan servicer is prohibited from cancelling the IDR plan.

Forbearance In contrast to IDR plans, which provide affordable monthly payments, borrowers may have their loans placed into temporary hardship forbearance. This halts monthly payments, but any unpaid interest that accrues during the forbearance gets capitalized. Forbearances are less beneficial to the borrower because they prevent the borrower from making qualifying payments toward eventual loan forgiveness. Perverse incentives on the part of servicers Although both the borrower and the Federal Government benefit when a student loan is repaid, servicers have an incentive to delay repayment of loans.

With respect to Direct Loans, the servicer receives a monthly fee from the Department of Education for each loan serviced. With respect to FFELP Loans held by third parties, the servicer similarly receives a monthly fee for each loan that is serviced. With respect to FFELP Loans owned by the servicer, the servicer receives more interest the longer the loan remains on the books. Servicers thus have financial incentives to 1 steer borrowers into forbearances rather than income based repayment plans and 2 process loans in a dilatory manner, so as to extend the life of the loan as long as possible.

A audit of Navient by the U. Department of Education reviewed about 2, calls between Navient and borrowers from to These representatives did not ask questions to find out if the borrower would have benefitted from such a plan, according to the audit. Rehabilitation and consolidation Federal student loans generally are considered to be in default when they are days delinquent.

Borrowers can get out of default through loan rehabilitation or loan consolidation. Loan rehabilitation takes several months to complete, while loan consolidation can be immediate. However, loan rehabilitation provides certain benefits that are not available through loan consolidation.

Neither type of program is ordinarily available for private student loans. Loan Rehabilitation One option for getting a federal student loan out of default is loan rehabilitation. To start the loan rehabilitation process, a borrower must contact the loan servicer. William D. Under a loan rehabilitation agreement, your loan servicer will determine a reasonable monthly payment amount that is equal to 15 percent of your annual discretionary income, divided by Discretionary income is the amount of your adjusted gross income from your most recent federal income tax return that exceeds percent of the poverty guideline amount for your state and family size.

You must provide documentation of your income to your loan servicer. Depending on your individual circumstances, this alternative payment amount may be lower than the payment amount you were initially offered. To rehabilitate your loan, you must choose one of the two payment amounts. Your loan servicer may be collecting payments on your defaulted loan through wage garnishment or Treasury offset taking all or part of your tax refunds or other government payments.

Involuntary payments may continue to be taken until your loan is no longer in default or until you have made some of your rehabilitation payments. Once you have made the required nine payments, your loans will no longer be in default. Federal Perkins Loan Program To rehabilitate a defaulted Federal Perkins Loan, you must make a full monthly payment each month, within 20 days of the due date, for nine consecutive months.

Your required monthly payment amount is determined by your loan servicer. Find out where to go for information about your Perkins Loan. Benefits of Loan Rehabilitation When your loan is rehabilitated, the default status will be removed from your loan, and collection of payments through wage garnishment or Treasury offset will stop. Also, the record of default on the rehabilitated loan will be removed from your credit history.

However, your credit history will still show late payments that were reported by your loan servicer before the loan went into default. Rehabilitation is a one-time opportunity. Loan Consolidation Another option for getting out of default is to consolidate your defaulted federal student loan into a Direct Consolidation Loan. Loan consolidation allows you to pay off one or more federal student loans with a new consolidation loan.

To consolidate a defaulted federal student loan into a new Direct Consolidation Loan, you must either 1 agree to repay the new Direct Consolidation Loan under an income-driven repayment plan, or 2 make three consecutive, voluntary, on-time, full monthly payments on the defaulted loan before you consolidate it. If you choose to make three payments on the defaulted loan before you consolidate it, the required payment amount will be determined by your loan servicer, but cannot be more than what is reasonable and affordable based on your total financial circumstances.

To reconsolidate a defaulted Direct Consolidation Loan, you must also include at least one other eligible loan in the consolidation in addition to meeting one of the two requirements described above. If you have no other eligible loans that can be included in the consolidation, you cannot get out of default by consolidating a defaulted Direct Consolidation Loan.

Your options are repayment in full or loan rehabilitation. You may reconsolidate a defaulted FFEL Consolidation Loan without including any additional loans in the consolidation, but only if you agree to repay the new Direct Consolidation Loan under an income-driven repayment plan. In addition, if you want to consolidate a defaulted loan that is being collected through garnishment of your wages, you cannot consolidate the loan unless the wage garnishment order has been lifted.

If you choose to repay the new Direct Consolidation Loan under an income-driven plan, you must select one of the available income-driven repayment plans at the time you apply for the consolidation loan and provide documentation of your income.

If you choose to make three consecutive, voluntary, on-time, full monthly payments on your defaulted loan before you consolidate it, you may repay the new Direct Consolidation Loan under any repayment plan you are eligible for. Unavailability of most defenses and procedural safeguards Enforcement of federal student loans can be draconian. There is no statute of limitations.