Loan Consolidation Information

Loan consolidation is a process of combining individual loans into one new loan to simplify and possibly lower the monthly payment and/or extend the repayment period.

Loan consolidation is another way for borrowers to handle large educational debt or combine multiple loans with multiple lenders or servicers to a single lender or servicer. A loan consolidation is a new loan that actually pays off the borrower's qualifying outstanding federal student loans, leaving the borrower with one loan and payment. Consolidation also offers an extended repayment period that can range from 10 to 30 years depending on the total amount of the educational loans. However, the borrower needs to be aware of the additional interest costs associated with longer repayment periods. In some cases, the interest expenses may be double or triple the amount a borrower would pay under the standard repayment plan. Currently, the only consolidation option available to student loan borrowers is Direct Loan consolidation. The Direct Loan Consolidation Center can be contacted by calling toll free 1-800-557-7392 or online at

The following federal loans can qualify for consolidation:

  • Federal Family Education Loan Program (FFELP) loans - Stafford, PLUS, SLS and consolidation loans
  • Federal Direct Loan Program (FDLP) loans - Stafford, PLUS and consolidation loans
  • Federal Insured Student Loans (FISL)
  • Perkins loans
  • Health Professions Student Loans (HPSL) - including loans for disadvantaged students
  • Nursing Student Loans (NSL)
  • Heath Education Assistance Loans (HEAL)


A federal consolidation loan enters repayment on the date the loan is disbursed. The lender/servicer must establish a first payment due date that is no more than 60 days after the date the consolidation loan is fully disbursed.

When repaying a Direct Consolidation Loan, a borrower may choose from as many as five repayment plans with various term selections. For information on the different repayment plans see Student Loan Repayment Plans.

  • Standard Repayment Plan
  • Graduated Repayment Plan
  • Extended Repayment Plan
  • Income Contingent Repayment Plan (ICR)
  • Income-Based Repayment Plan (IBR)

Interest Rate

The interest rate on a federal consolidation loan is the weighted-average rate of the loans being consolidated rounded up to the nearest 1/8th of a percent, but cannot exceed 8.25 percent. This rate is fixed for the life of the consolidation loan. To help find out what a weighted average interest rate would be if a borrower was to choose consolidation, please visit the following website and use the online calculater. See, click on "Borrower Services", and locate "Online Calculator" under the Additional Resources box.

How Can a Borrower Benefit?

One Lender and One Monthly Payment
A borrower has only one lender and one monthly payment, which makes it easier for borrowers to manage their debt. The lender for a Direct Consolidation Loan is the U.S. Department of Education (which is the only agency doing loan consolidation at this time).

Flexible Repayment Options
A borrower still has the option to choose from five different flexible repayment plans through consolidation. These plans are designed to be flexible to meet the different and changing needs of borrowers. A borrower still has the option to switch repayment plans at anytime.

No Minimum or Maximum Loan Amounts or Fees
There are no minimum or maximum loan amounts required to qualify for a Direct Loan Consolidation Loan. In addition, consolidation is free.

Reduced Monthly Payments
A consolidation loan may ease the strain on a borrower's budget by lowering the borrower's overall monthly payment. The minimum monthly payment on a consolidation loan may be lower than the combined payments charged on a borrower's federal education loans.

Retention of Subsidy Benefits
There are two possible portions to a consolidation loan: subsidized and unsubsidized. A borrower retains the subsidy benefits on loans that are consolidated into the subsidized portion of a consolidation loan. This means if a borrower is approved for a deferment, no interest is charged on any portion of the loans that are subsidized loans during the deferment period. This is the same regulation that applies to any federal subsidized loan in repayment.

Consolidation Tips

Plan Ahead.
The consolidation process usually takes 60-90 days for completion.

Know Your Loan Information.
Prior to completing the consolidation application, the borrower needs to know who their lender or servicer is, the amount of outstanding loan balance, the loan type and the interest rate for each loan. To locate a complete listing of a borrower's federal student loans and their servicers online, go to the National Student Loan Data System (NSLDS) at

Keep Up on Your Monthly Payments.
If the loans to be included in the consolidation enter repayment prior to the completion of the consolidation process, each loan must still be paid on the scheduled payment date. If the borrower is not able to make the payments, he/she should contact the lender or servicer to request a deferment or forbearance until the consolidation is completed. For additional information on deferment and/or forbearance, visit Difficulty Making My Payments.

Please Note: If the borrower is the actual student that was enrolled in school and is consolidating their own federal Stafford loans, the consolidation cannot include any parent PLUS loans that may have been borrowed under a parent's name. If the borrower wanting to consolidate is a parent, the parent cannot include their child's federal Stafford student loans in the parent's consolidation loan.

Spousal Consolidation

Effective as of July 1, 2006, married borrowers no longer may consolidate their education loans into a single new loan consolidation.

Consolidation of In-School Status Loans Discontinued

Effective as of July 1, 2006, a loan(s) in an in-school status cannot be included in a borrower's consolidation loan. Borrowers with loans in an in-school status can continue to consolidate their other loans that are in grace, repayment, deferment, forbearance, delinquent and default status.

Default Consolidation

Borrowers who want to consolidate a defaulted loan(s) must meet additional requirements for eligibility. Borrowers can consolidate most defaulted Federal education loans, if they make satisfactory repayment arrangements with the current loan holders or agree to repay their new Direct Consolidation Loan under the Income Contingent Repayment Plan.

Note: Borrowers who are in default also should be made aware of the addition of collection cost to their loan(s). When a defaulted Direct Loan or FFEL is included in a consolidation loan, collection costs of up to 18.5 percent of the outstanding principal and interest are added to the outstanding balance.
For further information on defaulted student loans see Delinquency and Default and/or go online to Guide to Defaulted Student Loans.

What are the repayment plans under Default Consolidation?
The repayments plans are the same as when repaying a Direct Consolidation Loan, a borrower may choose from as many as five repayment plans with various term selections. For information on the different repayment plans see Student Loan Repayment Plans.

  • Standard Repayment Plan
  • Graduated Repayment Plan
  • Extended Repayment Plan
  • Income Contingent Repayment Plan (ICR)
  • Income-Based Repayment Plan (IBR)

For any additional questions about the Direct Consolidation Loan Program or the repayment plans, please contact the Direct Consolidation Loan Information Center at 800-557-7392 or online at
If you are/were a Baker College student, you may also contact your Baker College Financial Aid Office or e-mail a Baker College System Student Loan Representative at They will be happy to assist you with any questions.

The Baker College System