Loan Consolidation for Medical Students

Please review all information when considering whether consolidation is right for you, since you may lose special borrower benefits by consolidating. Contact the medical student advisory staff for help understanding your options.

What is consolidation?

It's refinancing just one loan or the combining of all of your eligible federal student loans into one new loan with a fixed interest rate. The consolidation interest rate is based on the weighted average of the borrower's underlying loans rounded up to the nearest one-eight of a percentage point.

Note: Private educational loans cannot be consolidated with your federal student loans.

Why consolidate?

To secure a fixed rate of interest especially when rates are low and hopefully save money by reducing overall repayment costs
To bring multiple loans to one loan service to make it more convenient to manage loan repayment and filing of deferment forms

Benefits of consolidation

You can lock in your interest rate
- The interest rate effective 7/1/07 to 6/30/08 for loans disbursed between 7/1/98 and 6/30/06 is 6.62% for periods of in-school, grace or deferment. The rate is 7.22% for periods of repayment or forbearance. (Note: interest rates for variable rate Stafford loans are determined every year by June 1 and are based on the 91-day T-Bill rate. The new rates are effective from July 1 to June 30.)
- Note: Older Stafford loans have different rates.
- For all Stafford loans disbursed after July 1, 2006 the interest rate will be 6.8%. Stafford loans disbursed after 7/1/06 will keep the 6.8 fixed interest rate for the life of the loan. Loans disbursed prior to 7/1/06 will continue to have a variable rate unless they are consolidated at a fixed rate.
You can bring multiple loans into one loan servicer for ease of repayment and ease of filing deferment forms
Consolidators offer various repayment incentives to lower repayment costs. Ask each consolidator for details regarding their borrower incentives, such as:
- electronic auto pay (typically a 0.25% rate reduction)
- on-time repayment (typically an interest rate reduction or principal balance reduction for a set number of on-time payments offered by some Federal Consolidation lenders)

Drawbacks of consolidation

You could lose the special borrower benefits of MSU/Michigan Students First (MSF) loans which apply to loans available from Fall 2003 through Spring 2008:
- Origination fee rebate (1.5%)
  If you consolidate before the loan has been sold by MSU, Comerica or Chase to MHESLA, you will be billed the amount of the origination fee that was advanced to you by MSU.
- Reduced interest rate (0% for the remainder of your repayment period) after 36 months of on-time payments. (You must continue with your on-time payment record to keep the 0% interest rate.)
You cannot refinance the consolidated loan at later date for a better rate if rates are lower in the future. The interest rate is locked for the life of the loan.

Is consolidation right for me?

It depends on many variables - your borrowing history, when you'll start to repay your student loans, the length of repayment, your expected family income and expenses after leaving school, and your financial practices and preferences.
There are calculators to help determine your final consolidation interest rate and monthly repayment amount at www.mygreatlakes.com, but no calculator to determine whether to consolidate or not, since future interest rates cannot be predicted.
Remember that you can choose which loans to consolidate -- you do not have to consolidate all. You might choose not to consolidate your MSU/MSF loans in order to keep the special borrower benefits associated with them, but to consolidate other loans for the convenience of dealing with fewer lenders.

What kinds of consolidation programs are available?

Federal Consolidation, through the Federal Family Education Loan (FFEL) Program, is available from what some consider the more traditional lenders such as banks and other similar lending institutions and private lenders.
Direct Loan Consolidation, through the Federal Direct Student Loan (FDSL) Program, is available "directly" from the federal government. You can apply at www.loanconsolidation.ed.gov

Which consolidation lender can I choose?

You may consolidate either with the current holder(s) or servicer of your loans or shop for a "consolidation lender" of your choice.
Borrowers with no Direct Loans may consolidate into Direct Loans if the borrower has at least one FFEL loan and is unable to obtain a Federal Consolidation Loan with a FFEL consolidation lender or is unable to obtain a Federal Consolidation Loan with income-sensitive repayment terms.

When should I consolidate?

The ideal time to consolidate will likely vary by borrower, but there are a few guidelines that may help you.

First, the interest rate on variable rate Stafford Loans are lower during grace and deferment by .6%. Therefore if you consolidate during these time periods, you should get a lower fixed rate on you new consolidation loans than if you waited and consolidated during either forbearance or repayment when the rates go up by .6%.
Second, interest rates on variable rate Stafford loans change each July 1, but are determined by June 1 based on the 91-Day T-bill rate. Some borrowers may wait until the new rates are announced June 1 to determine whether to go ahead and consolidate before July 1 or after July 1.
Third, if you consolidate during grace (a period of time, i.e., 6 months for Stafford loans following graduation or separation when you are not required to pay on your loans), you lose any remaining months of grace and will enter immediate repayment (or you can apply for deferment/forbearance) at that time.
Note: if you are eligible for deferment the federal government continues to pay the interest on your subsidized loans. During forbearance interest is accumulating on both subsidized and unsubsidized loans.
Finally, since consolidation is considered a repayment option, don't forget that any accrued and unpaid interest on any unsubsidized loans you are including in your new consolidation loan will likely capitalize at the time of consolidation.

Note: beginning July 1, 2006 consolidation of in-school status loans was discontinued. Borrowers with in-school status loans can continue to consolidate loans that are in grace, repayment, deferment, forbearance, delinquent, and default statuses. For many students a decision whether to or not to consolidate will be made after leaving school or graduating.

What loans can I consolidate?

Guaranteed Student Loan (GSL)
Federal Supplemental Loan for Students (SLS)
Federal Subsidized Stafford (either Direct and/or FFEL)
Federal Unsubsidized Stafford (either Direct and/or FFEL)
Federal Grad PLUS (either Direct and/or FFEL)
Federal Perkins (formerly National Direct Student Loan) - a 5% fixed rate loan
Health Professions Student Loan (HPSL) - a 5% fixed rate loan
Loans for Disadvantaged Students (LDS) - a 5% fixed rate loan
Nursing Student Loans (NSL)
HEAL
Consolidation Loans (either FDSL or FFEL)

Primary Care Loan (PCL), institutional loans and private loans cannot be consolidated through either Federal or Direct Loan Consolidation.

Perkins loans deserve special consideration because they have a different deferment and grace subsidy treatment and allow for cancellation under certain circumstances. You may be eligible for partial cancellation of a percentage of the original principle balance of your Perkins (NDSL) loans if you complete at least one year of service in the following fields: Teaching, Law Enforcement, Military, Volunteer Service (Peace Corps/VISTA), Nursing and Medical Technicians and Child and Family Services.

What happens to the interest subsidy when I consolidate if I qualify for deferment on my new consolidation loan?

Federal Subsidized Stafford loans consolidated in Federal or Direct Loan Consolidation maintain their interest subsidy as long as you are in deferment on the new consolidation loan. If you decide to consolidate your Stafford loans you should include both subsidized and unsubsidized loans on the consolidation application.
Federal Perkins loans are treated differently with regard to interest free status in Federal and Direct Loan Consolidation. Perkins loans consolidated into Federal Consolidation are no longer interest free even if the borrower is in deferment on their Federal Consolidation Loan. However, Perkins loans consolidated into Direct Loan Consolidation remain interest free as long as the borrower is in deferment on their Direct Consolidation Loan.
Both Health Professions Student Loans (HPSL) and Loans for Disadvantaged Students (LDS) lose their interest free status when they are consolidated into either Federal or Direct Loan Consolidation, even if the new consolidation loan is in deferment.

Can I reconsolidate?

No, if all eligible Stafford loans have already been consolidated into one loan consolidation.
Yes, if you can add other eligible disbursed Stafford loans not previously included in your loan consolidation.
Note: if you reconsolidate a Stafford Loan previously consolidated between October 1, 2000 and September 30, 2001, you will lose any borrower benefits that were attached to the loan.

How do I consolidate my loans?

Gather all your student loan records.
Know your Department of Education PIN.
Review your borrowing history in the National Student Loan Data System (NSLDS)
You may want to contact the current holder(s) or loan servicer(s) of your student loans.

What happens after I submit my loan consolidation application?

Consolidation takes about 60-90 days, depending on how many lenders you have. Don't assume your loan(s) are consolidated until you get the new promissory note.
You will receive a consolidated loan summary. Review the itemization, check that the loans have the correct interest rate, and make sure all loans you want in the consolidation loan were included. If there are errors, contact the consolidation lender to make corrections.

Loan repayment calculators

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Costs

The Process

Types of Aid

References