Consolidate Federal Loans

A new law signed by President Barack Obama on March 30, 2010 allows students and parents to consolidate federal loans for easier payment. The law, H.R. 4872, is known as the Health Care and Education Affordability and Reconciliation Act.

Under this new law, students and parents of students that have educational loans will only be able to consolidate federal loans directly through the Federal Government starting on July 1, 2010.

Many students take out a large number of loans to help pay for undergraduate, graduate and professional degree education. Parents of students also qualify for educational loans to help their children while they are still dependents.

You may now consolidate federal loan obligations so that all your loans are combined under one lender – the U.S. Department of Education – and require only a single monthly payment. Other benefits from student loan consolidation include easier payment terms including Income Contingent Repayment and Income-based Repayment. The borrower can choose to switch from one repayment plan to another at anytime without penalty.

Also, some borrowers may qualify for an extension of deferment on their educational debt when they consolidate federal loans under this plan. No fee is required and there is no minimum or maximum limit on loan principal to qualify for consolidation.

By using this plan, qualified borrowers can reduce the overall amount they pay monthly on their federal student loans. Students and parents that demonstrate financial need may also qualify for a subsidized consolidation loan. In this case, the accrued interest on the loan during the deferment period is paid for by the government. Others may still qualify for unsubsidized loans in which case they are responsible for repaying accrued interest during the same period.

In order to prepare for a federal consolidation loan, you should first organize all your student loan documentation. The application can be completed online at the U.S. Department of Education’s Borrower Services website (https://loanconsolidation.ed.gov/AppEntry/apply-online/appindex.jsp). The site even allows you to sign your Promissory Note electronically over the internet. Alternatively you can send in your application and signed promissory note by mail.

Once you have applied to consolidate your federal loans, you can check on the status of your application using the Borrower Services web site. The agency handling the loan consolidation will have to contact all your loan holders to make arrangements for the consolidation. They must also inform the Internal Revenue Service for information that is used in setting your monthly payment.

Once approved, you are sent a letter with the loan statement, and you have 10 days to review the information for accuracy and changes. After 10 days, the new consolidation loan will be approved and your existing loans will be paid by the loan consolidation agency. A new account will be set up for your consolidation loan with all your previous federal loans now combined into one monthly payment.

If you would like more information, you can visit the Borrower Services website, or call 1-800-557-7392 (TDD 1-800-557-7395) to speak to a representative.