Important Terms
Loan Consolidation
The combining of existing student loans into one new loan. Generally this results in lower monthly payments but higher total interest costs.Eligible Loans
Loans eligible for consolidation include: Federal Stafford Loans; Federal Insured Student Loans Federal Supplemental Loans for Students (formerly student PLUS of ALAS); Parent PLUS Loans; Perkins Loans (formerly National Direct/Defense Student Loans); Health Education Assistance Loans (HEAL); and Health Professions Student Loans.
Loan Consolidation is a program that combines your various student loans into one making it easier to handle payment and other transactions. In addition, you can reduce your monthly payment amount through extended repayment periods. But consolidation also has drawbacks which can include fewer deferments and a higher interest rate.
Terms and Conditions When you consolidate, your loans are paid off by the consolidating lender who then issues you one new loan. A new repayment period is established based on the size of your debt.
You can consolidate only eligible loans that are in the repayment or grace period. If you have defaulted loans, you may include them in the consolidation if you have made satisfactory repayment arrangements with the holder of the defaulted loans.
Consolidation borrowers have the option of a graduated or income-sensitive repayment schedule, in which payment amounts are tied to income and increase along with earnings (effective July 1, 1994). After your loans are consolidated, you have 180 days in which you can add loans to the consolidation if they were taken out prior to consolidation. Borrowers who consolidate only subsidized Stafford Loans are eligible for interest subsidy benefits during deferment.
The interest rate for Consolidation Loans is the weighted average of the loans being consolidated, rounded upward to the nearest whole percent.
Deferments
If you took out your first student loans before July 1, 1993, and you consolidate after July 1, 1993, you will
be eligible for fewer deferments. Consolidation Loans may offer less deferments than your current student
loans. For more information about deferments or other terms of the Loan Consolidation program contact
your lender or the Northwest Education Loan Association.
Forbearance
If you are experiencing financial hardship but do not qualify for deferment, your lender may be willing to
grant a forbearance. Unlike deferment, lenders are not required to give you a
forebearance. (The exception to this is in the case of a borrower who has exhausted the time limit on a
medical internship/residency program deferment. Lenders are required to grant a forbearance to the
borrower in this instance. However, the borrower must request the forbearance in writing.)
Even if your lender isn't required to grant you a forbearance, most lenders are willing to work with you to find a solution to your problem as long as you continue to communicate and demonstrate a willingness to honor your obligation. During a forbearance, all student loan borrowers are responsible for the interest that accrues to their loans. The federal government does not provide interest subsidy on any loans during forbearance. Your lender may require that you pay the interest at intervals, or it may be capitalized (added to the principal balance) at the end of the forbearance.
Rights and Responsibilities
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