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What Is a Consolidation on My Federal Student Loan?

While looking into your federal student loan, you may have come across the term "loan consolidation."  That can be a very valuable tool for addressing your loan debt, but what is it?  What can it do?

Well the simplest answer I can give you is to substitute the word "refinance" for "consolidation, because that is basically what it is.  When you consolidate a loan, you are taking out a new loan to pay off the old one.  But wait, people refinance to get a better interest rate, and it doesn't look like the rate is going to change much.  Why would I want to consolidate?  There are three reasons.

Three Reasons to Consolidate

To Consolidate Several Loans Into One.  During your academic career, or that of your child, you must have taken out several loans to pay for it.  This left you with several payments, and you might want to simplify things.  In this instance you could consolidate the loans into one with a weighted average interest rate (an average weighted by the amounts of each loan).

To Benefit From a Repayment Plan. You might have older loans under the FFEL program rather than the DL (Direct Loan) program, which do not qualify for certain programs,  such as the Income Contingent Repayment (ICR) Plan.  Consolidating to a Direct Loan would help with that.

To Get Out of Loan Default.  Just like you would refinance a mortgage to get out of default and avoid foreclosure, you can consolidate defaulted loans into a new loan to get back on track and move forward.  Note, however, that you can only do this once.

So What Do I Do?

If you live in southern New Jersey and would like to consult with me on consolidating your loans, please feel free to call my office at 856-432-4113 or contact me through this site to schedule an appointment in my Woodbury office to discuss your case.

If you would like more information about student loans, you can dowload my free book, I Graduated; Now What? A Guide to Dealing with Your Student Loans.

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