Q: What is a consolidation loan and what are the benefits?
Q: What is the consolidation process?
Q: How do I obtain an application?
Q: What is a Federal Consolidation
Loan and what are the benefits?
A: The Higher Education Act (HEA)
provides for a loan consolidation program under both
the Federal Family Education
Loan (FFEL) Program and the Ford Federal Direct Loan
(FFDL) Program. Under these programs, a borrower’s
loans are paid off and a new consolidation loan is created.
These programs simplify loan repayment by combining several
types of federal education loans (that may have different
terms and repayment schedules or may have been made by
different lenders) into one new loan. The interest rate
may be lower than on one or more of the underlying loans.
In addition, the monthly payment amount on a consolidation
loan is usually lower and the amount of time to repay
may be extended beyond what was available in the separate
loan programs.
Q: What is the consolidation process?
A: When a borrower consolidates loans, the lender pays
off the original loans and originates a new loan for
the total amount of the loan(s) consolidated. After the
lender reviews the application, a credit check will be
performed. If the borrower has an adverse credit history,
the lender will send out a letter outlining your options.
The borrower has a right to appeal the decision, document
extenuating circumstances, or obtain an eligible endorser.
If the application is approved, the lender will then
send a verification certificate to the loan holder requesting
information about the loans included on the application.
After the loans are verified, a loan summary will be
mailed to the borrower and a check will be mailed to
the loan holder to pay off the loans. A consolidation
account is set up after the loans have been paid off.
Borrowers will receive important information regarding
loan status and repayment information. Usually the first
payment is due within 60 days of the first disbursement.
This multi-step process usually takes 4-6 weeks to complete.
Q: How do I obtain an application?
A: You should contact the lender(s) that currently service
your loans. If you have only one lender, then you are
limited to that lender only for consolidation. Almost
every lender offers a consolidation loan option to their
borrowers. Quite a few lenders have an online application
available on their web site. When considering a Federal
Consolidation Loan, you should compare the repayment
options, payback benefits, and interest rates that the
different lenders offer. You should also ask your lender
if any current repayment benefits that you receive will
be lost or retained if you consolidate.
Back to Top |
