College of Medicine Office
of Financial Aid:
Basics of Loan Consolidation
In this section we will cover some of the basics of consolidation.
For more detailed information you could check out the Direct Loan Consolidation
website at www.loanconsolidation.ed.gov
or the AAMC website at www.aamc.org.
Remember consolidation is not for everyone.
Topics Covered :
What is loan consolidation?
Loan consolidation is when you take at least two federal loans and combine them into one new loan. It simply means paying off or “refinancing” multiple loans with one new loan. It is not the same thing as having all your loans with one lender servicer (this is often called “serialization” or “combining” loans). A consolidated loan typically has a longer repayment schedule, thereby decreasing the monthly amount you pay, but increasing the total amount of interest you pay over the life of the loan.
- How do I qualify – You qualify for loan consolidation if you have any Direct Loans or FFEL Loans that are in grace, repayment, or deferment status.
Note: Consolidation of In-School Status Loans-- no longer available.
Consolidation and the “single holder” rule REPEALED
FFELP borrowers no longer have to first apply for consolidation with a single holder of their Federal Stafford loans. Congress has repealed this regulation such that any FFELP borrower may choose to consolidate with any lender/servicer that may or may not hold any of their Stafford loans.
Warning: Please be cautious when you receive solicitation from agencies that you have either never heard of or that do not own/service your loans.
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FFELP vs. Direct Loan Consolidation
- FFELP is offered through traditional lenders-FFELP consolidation
lenders compete against each other for the borrowers business
- The federal government offers direct loan consolidation
- Direct loan competes with the FFELP lenders
FFELP Consolidation
- Available to all Stafford borrowers, it doesn’t matter if
the loans are with FFELP or Direct Lending.
- Available only after school (during grace, deferment, forbearance,
and “active” repayment)
Direct Loan Consolidation
- Available for all Direct loan borrowers
- Available to FFELP borrowers out of school who either cannot obtain
a consolidation loan with their FFELP lender or cannot obtain acceptable
income sensitive repayment terms with their FFELP lender
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The benefits of consolidating your student loans
Borrowers may consolidate for one or any combination of reasons. Three popular reasons are:
- for convenience
- flexible repayment options
- varied deferment options
- Convenience - with only one lender and one monthly bill, it is easier for borrowers to manage their debt. Borrowers will have only one lender.
- Flexible repayment options - Borrowers can choose from four different plans to repay their consolidation loan, including an Income Contingent Repayment Plan. These plans are designed to be flexible to meet the different and changing needs of borrowers.
- Varied deferment options - Borrowers may qualify for renewed deferment benefits. If borrowers have exhausted the deferment options on their current Federal education loans, a consolidation loan may renew many of those deferment options. In addition, borrowers may be eligible for additional deferment options if they have an outstanding balance on a FFEL Program loan made before July 1, 1993, when they obtain their first Direct Loan.
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What is the interest rate on your new consolidated loan?
TConsolidated loans resulting from applications received on or after February 1, 1999 in either Federal Consolidation or Direct Loan Consolidation have an interest rate that will be the weighted average of all loans being consolidated rounded to the nearest higher one eighth of one percent and fixed for the remainder of the repayment period regardless of which repayment option a borrower selects. By law the fixed rate will never be higher than 8.25%,
What is the interest rate on your Stafford loans?
In a nutshell it depends. Refer to the chart below to determine which formula is used for any Stafford loans you have disbursed from July 1, 1994 to today. You can contact your lender or DL to get precise interest rates if you have loans from different formula years.
| Disbursement Periods |
Interest Rate FORMULA |
| July 1, 1994 – June 30, 1995 |
91-day T-bill +3.1%; capped at 8.25% |
| July 1, 1995 – June 30, 1998 |
91-day T-bill +2.5% for in-school, grace or deferment periods; capped at 8.25% |
| July 1, 1998 – June 30, 2006 |
91-day T-bill +1.7% for in-school, grace or deferment periods; capped at 8.25% |
| July 1, 2006 - |
6.8% fixed rate |
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Questions to Consider Before You Consolidate
- Why do you want to consolidate?
- How long does your internship/residency take to complete?
- What benefits will I lose if I consolidate my individual loans into
one bigger loan?
- What are the deferment options on the consolidated loan?
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