What is a consolidation loan?
Consolidation loans combine several student loans into one bigger loan from a single lender, which is then used to pay off the balances on the other loans. It is very similar to refinancing a mortgage. Consolidation loans are available for most federal loans, including FFELP (Stafford, PLUS and SLS), FISL, Perkins, Health Professional Student Loans, NSL, HEAL, Guaranteed Student Loans and Direct Loans.
Are there any student loan relief options based on the current income of the borrower?
Yes, there are two income-based options, the Income-Contingent Repayment Plan and the Income-Based Repayment Plan.
What are flexible consolidation repayment options?
Borrowers can choose from multiple repayment plans (with various terms) to repay consolidation loan(s), including the Income-Contingent Repayment Plan and the Income-Based Repayment Plan. These plans are designed to be flexible to meet the diverse and changing needs of borrowers. With a consolidation loan, borrowers can switch repayment plans at anytime. However, if you select the Income-Based Plan and wish to change at a later date, your only option will be the Standard Plan.
What is the minimum amount required for student loan consolidation?
There is no minimum amount required to qualify for a direct consolidation loan or student loan consolidation program.
Is there a prepayment penalty for consolidated federal student loans?
No. If your financial situation changes, and you are able to increase your monthly payment to pay off your loans more quickly, you may do so without penalty.
Are there ways to lower the interest rate on a consolidated federal loan?
Yes. First, consider consolidating your student loans during the six-month grace period following graduation. When you do so, lenders may lower your interest rate half a percent. Another option is to set up automatic payments on your loan. Many lenders will lower the interest rate half a percent for this as well.
Are there tax deductions for interest paid on federal student loans?
Yes, if you are making payments on federal student loans, you can deduct as much as $2,500 per year in interest payments. Even if you don’t itemize your deductions, the IRS still allows you to subtract up to $2,500 in interest payments from your taxable income. This deduction also applies to consolidated federal student loans.
How can I get my federal student loans deferred?
Federal student loans are granted deferrals on a case-by-case basis. The most common reasons for deferral include:
- Unemployment or demonstrated economic hardship
- Enrollment in college, career school or graduate program
- Active military service
Are there options for student loan forgiveness?
Yes, the government has programs to reward government volunteers and public service employees.
Can you consolidate private student loans with federal student loans?
No, a private loan cannot be consolidated with your federal student loans. It can only be consolidated with other private loans.