Student Loan Consolidation Program

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After you graduate, leave school, or drop below half-time enrollment, you have six or nine months before you begin your student loan repayments. You will receive information about repayment and will be notified by your loan provider of the date the loan repayment will begin.

Consolidation loans allow you to combine different types of federal student loans to simplify repayment. Even if you have just one loan, you can also choose to consolidate it. Consolidation is similar to refinancing a loan. You can consolidate all, just some, or even just one of your student loans.

Make sure to carefully consider whether loan consolidation is the best option for you.

Consolidation offers lower monthly payments by giving you up to 30 years to repay your loans. While loan consolidation can simplify loan repayment and lower your monthly payment, it also can significantly increase the total cost of repaying your loans. If you increase the length of your repayment period, you'll also make more payments and pay more in interest than you would otherwise. In fact, in some situations, consolidation can double your total interest expense. If you don't need monthly payment relief, you should compare the cost of repaying your unconsolidated loans against the cost of repaying a consolidation loan.

Both the FFEL and Direct Loan Programs offer consolidation loans.

FFEL Consolidation Loan

Designed to help student and parent borrowers consolidate several types of federal student loans with various repayment schedules into one loan. With a FFEL Consolidation Loan, you will make only one payment a month. Under this program, your consolidation loan will be made by a commercial lender, credit bureaus will be notified that your account has a zero balance, and you will sign a new promissory note that will establish a new interest rate and repayment schedule.

To receive a FFEL Consolidation Loan, you must be in repayment on your defaulted loan (that is, three voluntary, on-time, full monthly payments). Depending on the balance due, the repayment period may extend up to 30 years. If you owe no other delinquent or defaulted debts to the U.S., you will again be eligible for other federal funds, including FHA loans, VA loans, and Title IV student financial aid funds.

Direct Loan Consolidation Program

Under the Direct Loan Consolidation Program, you can consolidate Subsidized and Unsubsidized Stafford Loans, Supplemental Loans for Students (SLSs), Federally Insured Student Loans (FISLs), PLUS Loans, Direct Loans, Perkins Loans, Health Education Assistance Loans (HEALs), and just about any other type of federal student loan. Loans that are not eligible for consolidation include state or private loans that are not federally guaranteed. Although all of these different loans may be consolidated, you must have at least one outstanding FFEL or Direct Loan to obtain a Direct Consolidation Loan.

Disability and Student Loans

For those who are disabled, there is the possibility of 100% loan discharge if you meet the requirements. Due to changes made by the Higher Education Opportunity Act of 2008, it will become much easier to get one of these discharges as of July 1, 2010. There are loan forgiveness provisions for teachers and health professionals serving low-income areas. Currently, certain loan forgiveness or discharges are considered income by the Internal Revenue Service due to 26 U.S.C. 108(f).

The rules for total and permanent disability discharge are undergoing major changes as a result of the Higher Education Opportunity Act of 2008. Loan holders will no longer be required to be unable to earn any income, but instead the standard will be "substantial gainful activity" (SGA) as a result of disability.

The Loan Discharge Form for Disability can be found at www.studentloannetwork.com/downloads/pdf/LoanDischarge_Disability.pdf

For a complete list of the federal student loans that can be consolidated, contact the Direct Loan Origination Center's Consolidation Department by calling 1-800-557-7392 or visit www.loanconsolidation.ed.gov. TTY users may call 1-800-557-7395.

Remember, if you default on your student loan, the maturity date of each promissory note is accelerated making payment in full immediately due, and you are no longer eligible for any type of deferment or forbearance. Information on arrangements for student loan default can be found at - www2.ed.gov/offices/OSFAP/DCS/repaying.html

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