Student Loan Consolidation: Tips for Borrowers and Congress
Give Students a Break! Keep the Fixed Rate!

Congratulations! Whether you are leaving school or planning to continue in college, for the next several weeks, you have a rare opportunity to lock in one of the lowest interest rates ever on your student loans (or, in the case of parents, your PLUS loans), which can save you thousands of dollars in repayment. If you wait to consolidate after July 1st, the average undergraduate borrower with $19,000 in loan debt will pay $2,100 in additional interest on a ten-year loan, due to the higher rate.

The student loan interest rate will increase by almost 2 percentage points on July 1st, 2005 so consolidating now is one of the smartest financial
choices you can make. ACT NOW! Don’t wait till June 30th, as the lines will be jammed!

What is student loan consolidation?
How do I consolidate my loans? What advice do you have for borrowers?
How much will I save by consolidating?
Is consolidating now definitely right for me?

Take action to stop Congress from eliminating the fixed rate benefit in consolidation!

Questions on consolidating your student loans? Contact the Department of Education at 1-800-557-7392 or visit

What is student loan consolidation?
- Students and parents who have at least one loan through the federal government's Stafford or PLUS programs can lock in a low fixed interest rate by refinancing their variable-rate loan(s) into a consolidation loan.

- Advantages of consolidation: Not only can you get the advantage of just one loan payment each month, but most importantly right now, when you consolidate, you can lock in a fixed interest rate that will not change for the life of your loan repayment. Interest rates are at a historic low right now-by consolidating before July 1st, you can lock in an extremely low rate. The rate today for borrowers in school or in grace is 2.77 percent and the rate after June 30th, 2005 will be 4.7 percent. The rate for borrowers in repayment is currently 3.37 percent and is going to rise to 5.3 percent after June 30th. The current PLUS interest rate is 4.17 percent, which will rise to 6.1 percent.

How do I consolidate my loans? What advice do you have for borrowers?
- First steps: Contacting your lender is the first step. If you have a Direct Loan through the Department of Education or if you are attending a school that is participating in the Federal Direct Loan program, whether or not you have taken out your Stafford loan there, you can call 1-800-557-7392 or apply at If you have bank-based loans, you can contact any of the companies that own or service your Stafford loan(s). As long as you have loans with more than one company, you can also choose to consolidate with the Department of Education OR with any company that provides consolidation loans. If you don't know who owns your loans, you can find out by visiting

If you're still in school: If you have at least one Direct Loan, you can consolidate with the Department of Education (see contact info above) and maintain your grace period, whether or not you are continuing or leaving school. If you have only bank-based loan(s), you must obtain the cooperation of your lender to place your Stafford loans in "repayment status" that will be deferred while you're in school. Then you should apply for a consolidation loan at the "in school" interest rate (2.8 percent) You may be forced to forfeit your grace period, although your lender may agree to maintain it. When you finally do leave school, the consolidation loan that you are making now will go into repayment without a grace period, but if you are unable to start payments, you can apply for an "unemployment deferment," an "economic hardship deferment," (both of which will maintain your interest subsidy) or a forbearance (interest will accrue).

- If you have multiple lenders: You can shop around and choose to consolidate with any bank or company that provides consolidation loans or with the Department of Education (see contact info above). Terms and conditions can vary-some lenders will reduce your interest rate even further if you opt to pay directly through your electronic checking account or if you have a certain number of on-time payments. Promises of discounts that are not spelled out in the language of the promissory note may not be enforceable during the entire repayment period.

- Pay back quickly: You should generally pay off your student loans as quickly as you can, as the longer your repayment term is, the more interest you pay overall. You should also take into account other debts you may have, like credit card, and prioritize paying off your highest interest rate debts. Like a credit card balance, you can always pay more than the minimum amount due each month; student loans do not have any pre-payment penalties.

- Don't delay! The terms and conditions on consolidation loans do not vary dramatically from company to company, so the most important thing is that you apply for consolidation right away. The deadline is June 30, but you should apply before then to beat the rush of applications. As long as your application is received by June 30, your lender must honor locking in the lower rate, but you should verify the rate with your loan company.

- Get the lowest interest rate: Many lenders will offer interest rate reductions for borrowers who set up electronic payments through their bank accounts, as well as for a certain number of on-time payments. Ask about whether your lender offers these benefits or others.

- If you have private education loans: It's not a good idea to take out a non-federal consolidation loan in order to include both your federal and non-federal loans, since private loans carry higher interest rates generally and you will typically lose benefits.

- Read the fine print: Like any loan or credit agreement, read the terms and conditions of your consolidation loan carefully. You should know any of the benefits or interest rate reductions to which you may be entitled, and you should never be charged any fees to consolidate your federal student loans. When you receive the new promissory note for your consolidation loan, read that carefully, as well, to make sure everything you were promised is included.

- Beware false advertising: Some student loan consolidation companies market their materials to look like official Department of Education documents. If you're ever unsure, or to verify the authenticity of your materials, call the Department of Education's loan consolidation center at 1-800-557-7392.

How much will I save by consolidating ?
- The average undergraduate student borrower with $19,000 in student loans would save nearly $2,100 by consolidating before July 1st as opposed to later in the year. For those who never consolidate their loans, repayment could be even more expensive, as interest rates are projected to continue increasing in the future. Borrowers without fixed-rate consolidation loans will be subject to the variable rates that change on July 1st of each year, up to the cap of 8.25 percent for student and to 9 percent for PLUS borrowers.

- To figure out your own savings, you can go to and click on their 'Loan Payment Calculator.' By entering the current interest rate on your loans-2.77 for borrowers in school or in their grace period or 3.37 for borrowers in repayment-as well as your loan balance and repayment length, you can view your repayment amount. You can calculate the repayment amount you would have after July 1st by adding 1.93 percentage points to your current interest rate and going through the same process.

Is consolidating now definitely right for me?
- If you have a low loan balance: Consolidation will save high-balance borrowers more than low-balance borrowers, but all borrowers will save. Most bank-based lenders require a balance of at least $7,500 to consolidate. Check with the company that owns your loan. Direct Consolidation loans are available to any eligible borrower, regardless of balance.

- If you have a Perkins loan, Nursing Student Loan, or any other Fixed Rate Loan: Consolidating these loans is generally not advantageous, as the interest rate on Perkins loans is fixed at 5 percent, which would increase your consolidation rate. Because many of the federal fixed rate loans have good deferment and cancellation benefits, in most cases you should not include them in a consolidation loan. For example, consolidating a Perkins loan requires you to give up possible loan forgiveness, your in-school subsidy if you're still a student, and your 9-month grace period. If your lender says that you are not going to qualify for a consolidation loan unless you include a Perkins loan, for example, check with the Federal Direct Consolidation loan help desk (contact info above).

- If you're in school: If you have a Direct Loan, you are not required to give up your grace period if you consolidate while in school. Consolidating your bank-based (FFEL) loan while you're in school may require you to give up your six-month grace period, although some lenders are maintaining these. However, the savings that you would incur by consolidating now at such a low rate may be worth it for you to start repayment immediately after graduation. In addition, you may be eligible for an unemployment deferment, underemployment (economic hardship), or a forbearance of all or part of the payments, which would allow you to delay starting repayment. It's always a good idea to pay at least the interest as it comes due, if you have the means to do so. If you have a subsidized Stafford loan or a Perkins loan, consolidating those loans while in school is usually not a good idea, as you would likely lose that subsidy. You should check with your lender to inquire about their terms and conditions for in-school consolidation.

How can I stop Congress from eliminating the fixed rate benefit in consolidation?
- Call and write your members of Congress! Unfortunately, there are two bills right now that would eliminate the ability of borrowers to lock in low, fixed rates through student loan consolidation, H.R. 609, sponsored by Congressman John Boehner (R-OH) and H.R. 1293, sponsored by Congressman Rob Andrews (D-NJ). Ask your members of Congress to oppose these bills and to support maintaining the fixed rate for student borrowers!

Press Release: Student and Consumer Groups Give Advice to Student Borrowers on Congress on Consolidation 6/7/05