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Consolidation Eligibility

Article on Consolidation Eligibility

For the average student, it is much easier to repay student loans if they are consolidated. Paying one bill instead of four is easier to keep track of and gentler on the wallet. Consolidation eligibility is easier than students might think. It is highly recommended especially for those that have variable interest loans or are in danger of default.

What is consolidation?

Consolidation literally means combining the existing loans into one loan. One payment is due each month at a fixed rate of interest. The monthly payment is much lower than paying several loans, making keeping up with payment easier. The drawback is that the length of the loan is extended, so the total payout may be more in the end. There are no fees to consolidate most loans and the borrower can choose the lender that they want to handle the consolidation. A great benefit is that most student loans have consolidation eligibility.

Types of Consolidation

Just like there are different types of student loans, there are different types of consolidation. Consolidation eligibility for a certain type depends on the loan types held. If there are any private loans held, these must be consolidated through a private loan. Federal loans are typically combined through the Federal Direct Consolidation Loan program. This program consolidates loans with interest charged equal to the mean weighted average of interest rates on the existing loans.

What can be consolidated?

Federal loans and private loans cannot usually be combined into one loan. However, all of the loans held will be considered in making a repayment plan on a consolidation loan. In addition, as the borrower must be the same on all loans combined, parent and student loans cannot be consolidated. In the past married students were able to consolidate their loans, but this was changed in 2005 because the loans cannot be broken apart in case of divorce.

Federal Consolidation Eligibility

Even if the school attended was not part of the direct loan program, the loans can be consolidated. All student loans issued from federal programs and some state loans are eligible. If both subsidized and unsubsidized loans are both held, they can also be merged. Regarding the payment status, loans that are in default as well as those in normal repayment status can be combined together. Usually, federal loans that are in "in school" status cannot be part of a consolidation., However, for consolidation applications received between July 1, 2010 and July 1, 2011, these loans may be considered.

Private Consolidation

Consolidating private student loans is similar to applying for them. Unlike a federal loan that used a weighted average to determine the interest rate, a private loan consolidation interest rate depends on the credit score of the borrower. If the borrower has started to build good credit since graduation or interest rates are lower than when the loan originated, a lower rate than the original loans may be possible. Unfortunately, some private consolidation loans have origination fees.

Because of consolidation eligibility requirements, all student loans held by the borrower may or may not be able to be consolidated into one loan. However, merging any eligible loans together can make payments more manageable and prevent loans from going into default.