Government Announces Brief Opportunity to Consolidate Student Loans
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UPDATED: Nov 17, 2011
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Between January 1 and January 30, 2012, the U.S. Department of Education (department) will offer Special Direct Consolidation Loans, which are designed to help borrowers manage their debt by grouping federal student loans into a single bill with a single payment.
This special short-term consolidation opportunity is available to those who have both:
- One or more Direct Loans or Federal Family Education Loans (FFEL) owned by the department and serviced by one of the department’s servicers
- One or more commercially-held FFELs owned by an FFEL lender and serviced by one of that lender’s servicers
While a borrower must have both a department-owned loan and a commercial-owned loan to qualify for this program, only the commercial-owned loans will be consolidated.
The eligible commercially-held FFEL loans include:
- FFEL Subsidized and Unsubsidized Stafford Loans
- FFEL Plus Loans
- FFEL Consolidation Loans
The loans must be in grace, repayment, deferment, or forbearance to qualify for the program.
The consolidated student loans will receive a 0.25 percent interest rate reduction then take on a fixed rate calculated from the average of all the loans, but cannot exceed 8.25 percent.
The repayment term on the consolidated loan will remain the same as the current terms on the borrowers’ existing loans, but since there will be an interest rate reduction, the total interest payment over the life of the loan will be smaller than a traditional consolidation program would allow.
If eligible, borrowers can still make use of the income-based repayment (IBR) program with these loans.
Finally, by turning commercially-held FFEL loans into Special Direct Consolidation Loans, they become Direct Loans, which allow eligibility for the Public Service Loan Forgiveness Program (PSLF). The PSLF grants full student loan forgiveness after 120 payments from an individual employed in an eligible public service job.