Consilidating student loans
There are major benefits and drawbacks of federal consolidation; it’s important to understand both because consolidation can’t be undone.
[Back to top] Only federal loans in the Direct Loan Program qualify for Pay As You Earn, Revised Pay As You Earn, income-contingent repayment and Public Service Loan Forgiveness.
This is known as capitalization, and it increases the total amount of interest you pay because you end up paying interest on top of your interest.
The tool shows you how much you’d pay per month on the various plans.
If you choose an income-driven plan, you’ll be asked to provide income information on the application by granting access to your IRS tax information. The remainder of the application involves filling in basic personal information and providing names of two references who have known you for at least three years.
While this will lower your monthly payments, you’ll end up paying more in interest throughout the life of your loan.
Secondly, the interest rate on your consolidation loan may be slightly higher, because it will be the weighted average of your previous rates rounded up to the nearest ⅛ of 1%.