In order to qualify for direct consolidation loans, you must have at least one direct loan or Federal Family Education Loan (FFEL) Program loan that is in grace, repayment, deferment, or default status.
If you are currently enrolled in school, you can no longer consolidate your loans. This is because your loans will be defined as having “in school” status, making those loans ineligible to be included in a direct consolidation loan.
The Higher Education Reconciliation Act of 2005 eliminated the provision that allowed FFEL or direct loan borrowers enrolled in school at least half-time to request, with their lender’s approval, the right to enter repayment early on Stafford loans.
Consequently, repayment has been redefined as commencing six months and one day after the date you stop attending classes at least half-time. You can consolidate defaulted student loans—after first getting them into repayment status for three months or rehabilitating them for 9 to 12 months.
Some experts say the best time to consolidate is during a deferment or during the grace period before your loan is scheduled to be repaid.
This way you’ll get a better interest rate on your consolidated loan because federal loans provide for a lower interest rate while you’re in school. Once you start repaying the loan (after you graduate and go through your six-month grace period), your interest rate increases.
Should you decide to consolidate, here are the some of the types of loans that are eligible for loan consolidation:
- Stafford loans (subsidized or unsubsidized)
- Perkins loans
- PLUS loans
- Health Professions Student Loans (HPSL)
- Health Education Assistance Loan (HEAL)
- Nursing Student Loan (NSL)
- National Direct Student Loan (NDSL)
- SLS Loan (formerly called ALAS Loans)
- Federal Insured Student Loan (FISL)
Remember: Federal Stafford loans are made to students while PLUS loans are made to parents through two loan programs:
- The William D. Ford Federal Direct Loan Program, where you or your parents borrow directly from the federal government at participating schools. Direct loans include Direct Stafford loans, Direct PLUS loans, and direct consolidation loans; and
- The Federal Family Education Loan (FFEL) Program, where private lenders provide federally guaranteed funds. FFELs include FFEL Stafford loans, FFEL PLUS loans, and FFEL consolidation loans.
College graduates can now shop around for lenders. This is a big advantage because in years past (before 2006), college grads were stuck with whomever their original lender was.
Now, each successive graduating class will be able to refinance their student loans with whatever lender they choose. This will give them the flexibility and power to seek out lenders that provide added benefits, such as cash rebates, lower rates for automatic deductions, or other sweeteners for making a specific number of on-time payments.
Read Frequently Asked Questions About Student Loans.