Understand consolidation repayment terms

Interest rate

  • The interest rate on your Consolidation Loan is a fixed rate for the life of the loan. Your rate will be the weighted average of the loans you are consolidating, rounded up to the nearest 1/8th of one whole percent.
  • The consolidation rate may result in a slightly higher rate, since it's rounded up to the nearest 1/8th of one percent. On the other hand, if the loans you consolidate have a variable rate that is set to increase, you can lock in a lower, fixed rate.
  • Your loan holder may offer a reduction in the interest rate if you make on-time, electronic payments (direct debit). It's always a good idea to ask your loan holder about these and any other discounts.
  • No interest accrues on loans made on or after October 1, 2008 (or on the portion of a Direct Consolidation Loan used to repay such a loan) for military borrowers serving in an area of hostilities.

Note: Even though after consolidation you will have one loan, if you are consolidating subsidized and unsubsidized loans, they will be tracked separately. If you decide to return to school or enter into another deferment period, the subsidized portion of your consolidation loan retains the benefit of having the interest paid for you during that time. The only exception to this rule is a Federal Perkins Loans. If you consolidate Perkins Loans, they are included in the unsubsidized portion of the Consolidation Loan and do not retain their interest benefits.

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Repayment period

Consolidation extends your repayment period from the standard 10 years up to 30 years, depending on the total amount of your educational loan debt.

Maximum Repayment
$7,500 - 9,99912 years
$10,000 - 19,99915 years
$20,000 - 39,99920 years
$40,000 - 59,99925 years
$60,000 and higher30 years

While increasing the repayment period reduces monthly payments, it increases the amount of interest you will pay. You will pay more interest over the life of the loan, unless you increase your payments or prepay the loan (which you can do without penalty) once your financial situation improves.

Use the consolidation worksheet to estimate your monthly payments, principal, and interest, and compare this to your existing loan payments.

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Payment Plans

When you begin repayment, your loan holder offers several flexible payment options:

  • Standard (equal) repayment is the traditional approach. You will pay less interest under this plan.
  • Graduated repayment begins with lower payment amounts that increase over time. This allows payments to be smaller in the beginning of repayment with increases in stages during the repayment period.
  • Income-contingent repayment (Direct Consolidation Loans) adjusts your payments annually based on your gross income and family size.
  • Income-sensitive repayment (Federal Consolidation Loans) adjusts your payments annually based on your gross income.
  • Income-based repayment limits your loan payments to 15 percent of your (and your spouse's, if applicable) income that exceeds 150 percent of the poverty line for your family size.
    • Income-based repayment is not available for Consolidation Loans that paid off one or more Direct PLUS Loans or Federal PLUS Loans for parents.
    • If the monthly payment amount is not enough to pay accrued interest on the subsidized portion of a Consolidation Loan, the Department of Education will pay the remaining interest for a period of three years.
    • Estimate payments under the income based repayment plan.
  • Extended repayment offers a lower payment by stretching out the life of the loan. If your first loan was disbursed on or after October 7, 1998 and you have more than $30,000 in outstanding Federal Family Education Loan (FFEL) Program loans or Direct Loans (a combined total from both programs does not qualify), your repayment term may be extended up to 25 years. Note: If you meet these qualifications, you can have your repayment period extended for up to 25 years without consolidating your loans. Check with your loan holder about the pros and cons of this option.

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Repayment example

You have the following loans you're considering consolidating:

Loan A: $2,625 balance, 4.13 percent interest
Loan B: $3,500 balance, 5.2 percent interest
Loan C: $5,500 balance, 6.1 percent interest
Loan D: $5,500 balance, 6.8 percent interest

If you consolidate these loans (a total of $17,125), you'll have 15 years (180 months) to repay your Consolidation Loan. The weighted average interest rate of the loans is 5.839 percent. This is rounded up to the nearest 1/8th of one whole percent, resulting in your fixed interest rate of 5.875 percent.

If you repay your Consolidation Loan under an equal payment plan, your monthly payment will be $143.36. In the end, you will have paid $25,804.18, which includes $8,679.18 in interest.

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Repayment tips

  • Check to see if your loan holder offers automatic payment withdrawal. This is an easy way to make sure your payments are made on time. Some loan holders even lower your interest rate if you sign up for this option.
  • You may prepay all or part of your loan at any time without penalty. Prepayment can substantially reduce the amount of interest you will pay.

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