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Consolidation is the bundling of your student loans in to a single loan with a single monthly payment. If you consider this option, weigh what you may gain against what you might lose. This will involve knowing the federal program under which your loan exists.

Centralizing Payments

A consolidated loan means one payment for your student loans. You may find value in not having to track multiple loans and their obligations and different due dates. Also, you can shed the variable interest rates in favor of a fixed rate. The single loan can help you manage your budget and schedule when to pay on the student loan based on your pay days.

Lower Payments, More Interest

The standard time to repay student loans run ten years. By consolidating, you can extend the time to 30 years. While this means lower monthly payments, it can translate to you actually paying more because interest accrues for a longer period of time.

Future Homebuyer Plans?

Watch the timing of a longer student loan with your plans to buy a home. Should you lengthen the term by consolidating, your student loan payment may overlap with other debts and potential mortgage payments. In fact, you may hamper your ability to qualify for a home mortgage.

Lenders consider your debt-to-income ratio, which consists of the sum of monthly payments on credit cards, vehicle loans or leases, student loans and your mortgage. Generally, the ratio should not exceed 36 percent, which means no more than 36 cent of every dollar should go to debt. Beyond this, lenders become nervous that you will become loaded with debt and default on a mortgage.

Qualifying for Loan Forgiveness

If you originally borrowed through the Perkins Loan or Federal Family Education Loan programs, consolidation into a “Direct Loan” may qualify you for Public Service Loan Forgiveness (PSLF). Under this program, you make 120 monthly payments. At the end, the remaining balance on your student loan vanishes, or is forgiven.

To initially qualify, you must work at least 30 hours per week in a public service calling. This includes employment in:

  • A federal, state, local or tribal governmental body or agency;
  • A 501(c)(3) nonprofit organization, such as a charity;
  • Nonprofits that provide public interest services, such as military services, emergency management, early childhood education, law enforcement, public interest legal services
  • A full-time position in AmeriCorps or Peace Corps

Employment in labor unions, non-501(c)(3)s that do not perform “public services” and political organizations does not count for PSLF.

You can accumulate eligible payments through “Income-Based Repayment.” Your monthly payments are capped at 15 percent of the difference between your adjusted gross income and 150 percent of the federal poverty level. The latter number depends on whether you live in the lower 48 states or the District of Columbia, or whether you reside in Alaska or Hawaii.

Loss of Benefits From the Original Loans

Grace Periods

Most federal student loan programs offer a grace period, or time you can wait after graduation before starting repayments. On Federal Direct Loans, you get six months. The period lasts nine months for Perkins Loans. There exists no grace period on Federal Direct PLUS Loans.

When you consolidate student loans, you lose this deferment of payment obligations and you begin repayment immediately upon consolidation. With Perkins Loans, interest does not build during deferment. On a consolidated loan, interest begins immediately. Should you opt for consolidation, consider waiting until the latter part of the grace period. Typically, a loan consolidation request will take eight to ten weeks to complete.


If you have a Perkins Loan, consolidating it could cost you the chance to cancel the loan. This includes consolidating a Perkins Loan to access the Public Service Forgiveness Program.

The Perkins Loan program allows elimination of the debt for certain public service.

For teachers in public school or nonprofit schools, a full cancellation (100 percent) is available for any of the following:

  • If the school serves students in low-income families
  • For special education teachers, including of those with disabilities
  • Those who teach math, science, foreign languages or any other subject with a shortage of qualified teachers, as determined by a state education agency
  • Teachers in bilingual education

Borrowers who are service providers, such as nurse or medical technicians, law enforcement or corrections officers, certain workers for at-risk children and their families in low-income communities and staff in Head Start educational or preschool programs also qualify for cancellation under the Perkins program.

Those who have served in full-time in the military, National Guard or Reserves can receive a 50 percent cancellation, while Peace Corps or Americops VISTA volunteers can get a 70 percent cancellation.


You might wish to avoid consolidation if you’re in the military. Under the federal Service members Civil Relief Act (SCRA), active members of the armed forces qualify for lowered interest rates on federal and private student loans originated prior to enlistment. If you enter into a loan, such as a consolidated loan, while you’re on active duty, that rate reduction disappears.

The National Student Loan Data System can tell you the type of loans you have. With this information, you can determine your eligibility to consolidate, the features of your loan and whether other alternatives can better help you manage the responsibilities of student loans.