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What is Student Debt Consolidation and How Do I Do It?

Loan consolidation A.K.A. “Direct consolidation loan” is a government program. Essentially, this is where you combine your loans into one loan with a fixed interest rate based on the weighted average of the rates you have. It is free to do and many people do it to simplify their payments.

Watch out for scammers! A Direct Consolidation Loan allows you to consolidate multiple federal education loans into one loan at no cost to you. You may be contacted by private companies that offer to help you consolidate your loans, for a fee. These companies have no affiliation with the U.S. Department of Education (ED) or ED’s Federal Loan Servicers.

Here are the top things you need to know before you consolidate your debt:

  • Your monthly payment may decrease, but it is likely because when you consolidated, you also extended the term, which can mean you will pay more interest over time.
  • Consolidating does not mean you will have a lower amount, and may extend the term of the loan. If you extend the term of your loan, you may end up paying more interest in the long term.
  • Extended repayment terms mean you’ll be in debt longer.
  • Debt consolidation doesn’t mean debt elimination.
  • Debt consolidation is different from debt settlement and debt refinancing for a lower rate
  • This could make you eligible OR ineligible for one of the Income Based Repayment Plans.

What will you need?

  • Verified FSA ID
  • Personal Information: Permanent Address, E-mail Address, Telephone Number, Mobile Phone Number, Best Time To Reach
  • Financial Information: you loan information, gross adjusted income (all types of income into one after approved expenses are excluded), whether you are on one of the income-based repayment plans

OK I’m Ready, Now How Do I Do It?

  1. Log in to the official student loan government site and click on “Complete Consolidation Loan Application and Promissory Note.” You’ll need to finish the application in one session, so gather the documents listed above.
    Enter which loans you do and don’t want to consolidate.
  2. Choose a repayment plan. You can either get a repayment timeline based on your loan balance or pick one that ties payments to income. If you pick an income-driven plan, you’ll fill out an Income-Driven Repayment Plan Request form next.
  3. Read the terms before submitting the form online. Continue making student loan payments as usual until your servicer confirms consolidation is complete.

How long will it take?

The entire Loan Consolidation process must be completed in a single session. Most people complete the process in less than 30 minutes.

Are you interested in getting a free report on your student debt with an action plan? Sign up for our student debt beta here:

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