Stafford Loan Consolidation

The Stafford loan is a federal student loan that is offered to eligible undergraduate students that are enrolled in schools that participate in the Direct Loan program.  Under the direct loan program, funding comes directly from the federal government and all repayment plans are paid directly to the federal government.  The Department of Education is responsible for administering the direct loan program.  Any loan consolidation questions can be reviewed with the Department of Education or through your school’s financial aid office.

Students that have a Stafford Loan are eligible for a Federal Stafford Loan consolidation.  To apply for a Federal Stafford Loan Consolidation, the borrower must contact the Department of Education and complete an application.  There is an option for borrowers to either apply on-line or request an application over the telephone.  Once an application is completed and submitted, the lender will request information from the borrower’s other lenders or from its own system to determine the amounts outstanding on the borrowers loans.  The borrower will then receive notification about the federal Stafford loan consolidation decision, normal consumer disclosures, the amount owed, and where to make payments.
Federal Stafford consolidation loans have fixed interest rates that are based on the weighted average of the interest rates on the loans being consolidated. A lender can provide a new consolidation loan borrower with the lowest statutory weighted average interest rate for loans by using the lower of the weighted average of the interest rates on the loans being consolidated as of July 1 or the date the lender received the borrower's consolidation loan application. The lender should apply a consistent method of determining when a student loan consolidation application is received.

The subsidized and unsubsidized Stafford Loans are eligible for a Federal Stafford Loan Consolidation after the student graduates, leaves school, or drops below half-time enrollment.

To be eligible for a Federal Stafford Loan Consolidation, borrowers must have at least one Direct Loan that is in grace, repayment, deferment or default status. Loans that are in an in-school status cannot be included in a Direct Consolidation Loan.  Borrowers can consolidate most defaulted education loans, if they make satisfactory repayment arrangements with the current loan holders or agree to repay their new Direct Consolidation Loan under the Income Contingent Repayment Plan.  Borrowers who have only a Stafford Consolidation Loan cannot consolidate again unless they include an additional loan.
Borrowers who do not have Direct Loans may be eligible for a Direct Consolidation Loan if they include at least one FFEL Loan and have been unable to obtain a Federal Consolidation Loan with a FFEL consolidation lender or have been unable to obtain a Federal Consolidation Loan with income-sensitive repayment terms acceptable to them or intend to apply for loan forgiveness under the Public Service Loan Forgiveness Program.

The interest rate for a Federal Stafford Loan Consolidation is set according to a formula established by federal statute. The fixed rate is based on the weighted average of the interest rates on the loans at the time you consolidate, rounded up to the nearest one-eighth of a percent. The interest rate does not exceed 8.25 percent. The consolidation rate is fixed for the life of the loan, which protects you from future increases in variable rate loans but prevents you from benefiting from future decreases in variable rates.

Borrowers with Stafford Loans issued on or after July 1, 1995, can reduce the consolidation rate by up to half a percentage point or more by consolidating before the end of the grace period.
Repayment of Consolidation Loans begins within 60 days of the disbursement of the loan. The payback term ranges from 10 to 30 years, depending on the amount of education debt being repaid and the repayment option you select. Education loans not included in the Consolidation Loan are considered in determining the maximum payback period. You may elect to repay your loans under a shorter period than the maximum allowed.
Borrowers that apply for a Federal Stafford Loan Consolidation will not have to pay any application fees or prepayment penalties.  Borrowers may be subject to a credit check for adverse credit history. 

You should keep in mind that although a Federal Stafford Loan Consolidation can simplify loan repayment and lower your monthly payment, it also can significantly increase the total cost of repaying your loans. Consolidation offers lower monthly payments by giving borrowers up to 30 years to repay their loans. So, you'll make more payments and pay more in interest. 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. You also should take into account the impact of losing any borrower benefits offered under non-consolidated repayment plans. Borrower benefits, which may include interest rate discounts, principal rebates, or some loan cancellation benefits can significantly reduce the cost of repaying your loans.

Once made, Federal Stafford Loan Consolidation Loans cannot be changed. That's because the loans that were consolidated have been paid off and no longer exist. Take the time to study your consolidation options before you submit your application.

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