The Federal Consolidation Loan

The Federal Consolidation Loan is designed to assist you with managing your student loan debt. It allows you to combine multiple student loans together, thus having one loan payment and loan holder. Your consolidating lender merges your existing loans into a new single loan called a Federal Consolidation Loan

Determine which loans you can consolidate

- Subsidized and unsubsidized Federal Stafford Loans
- Federal Grad PLUS Loans
- Federal Supplemental Loans for Students (SLS)
- Federal Perkins Loans
- Health Professions Student Loans (HPSL), including Loans for Disadvantaged Students (LDS)
- Health Education Assistance Loans (HEAL)
- Federal Insured Student Loans (FISL)
- Federal PLUS (Parent Loans for Undergraduate Students) Loans
- Federal Nursing Loans (NSL)
- Federal Consolidation Loans (if you have at least one other eligible loan to consolidate with it)
It's important to note that you do not have to consolidate all of your loans. You can choose which ones you want to include and which ones you don't. For example, many students choose not to include their Perkins Loans in order to maintain the forgiveness options on those loans.

Choose a lender

With the large number of consolidation lenders available, it's important to conduct research to ensure you find the one that works best for you. It's possible you could be dealing with whichever lender you choose for 30 years.

For the most part, once you consolidate, you can't re-consolidate with a different lender unless you have a new loan to add to the consolidation. There are a few exceptions to this rule:
Beginning July 1, 2008, you may re-consolidate your loans into the Federal Direct Loan Program to qualify for public service loan forgiveness.
Effective August 14, 2008, you may re-consolidate your loans into the Federal Direct Loan Program to qualify for a zero-interest feature that is available for loans made on or after October 1, 2008 to military borrowers serving in an area of hostilities.
Beginning July 1, 2009, you may re-consolidate your loans into the Federal Direct Loan Program to qualify for the income-based repayment plan.
It's a good idea to shop lenders to find the one with the best incentive plan. If you're not sure where to start, consider contacting the holder of your current loans and/or your guarantor.

Since Federal Consolidation Loans are governed by federal regulations, you will find the basics of the loan (such as the weighted average interest rate and deferment eligibility) will be the same from lender to lender.
The differences between lenders will be in their incentive programs. Some lenders offer incentives such as lower interest rates for automatic payments or rebates for consecutive, on-time payments.

Questions to ask potential consolidating lenders:

> Do they have repayment incentives? What are they? (Get details!)
> Are you likely to qualify for their repayment incentive program?
> If you are late on a payment, do you still qualify for incentive benefits?
> Is this a Federal Consolidation Loan (not a private consolidation, which most likely has different terms)?
> Will the loan be sold to another lender or servicer? If so, to whom and when?
> What customer service options do they offer? Can you manage your loan online?

Note about loan servicers and loan sales
- Loan holders often use servicers to maintain student loan records and files. Your Consolidation Loan holder might use a servicer to process consolidation payments or deferments.

- To increase the amount of funds available for new loans, a loan holder may sell your Consolidation Loan. If your loan is sold to a new holder, you will be notified in writing. You must direct future correspondence to the new holder.