Consolidation Rules for Student Loans

First and foremost do remember, private student loans cannot be included in with a government student loan consolidation. In some cases, however, the loan institution may allow you to include a private student loan, but it is not advisable to include a private student loan in with your government student loan consolidation.

When a private loan is included with a federally funded loan, it then becomes subject to the same rules and restrictions as the federally funded loan. To be eligible for student loan consolidation you must have certain criteria.

If you are a student borrower, your education loans must be eligible for consolidation: They must be in grace, repayment, deferment, or forbearance. Students can consolidate while still in school, during the six-month grace period immediately following graduation or during the repayment period.

Keep in mind that interest rates are lower when you consolidate while you are still in school or during your grace period. However, if you are enrolled less than half time, you are not eligible to consolidate your federal student loan. [You are considered to be enrolled half-time if you are taking six or more credit hours during the semester at most academic institutions.]

To qualify while still in school, a student needs to request early repayment status from the lender. By doing so, you lock in the lower rate but also wipe out your future grace period. However, students can still defer payments by requesting an in-school deferment until after graduation. You will be required to begin making payments on your loan within 60 days.

Before you consolidate, you must take inventory of all your outstanding loans. You can consolidate your loans at a bank or credit union that is a member of the Federal Family Education Loan Program.

Remember, if all your loans are held with one private sector lender (rather than through the federal government or the direct-loan program), you must give that lender the first right of refusal on the chance to consolidate your loans before shopping around to other lenders.

You can consolidate your federal loans even if you only have one loan. You need to have a loan balance of at least $5,000 in order to consolidate. You can consolidate with any lender and not just the one that holds your loan.

You must certify that you do not have another application for a consolidation loan pending with another lender. You can add eligible existing or new loans to your consolidated student loans no later than 180 days after the issue date of the consolidation loan.

In addition, you may reconsolidate an existing consolidation loan with any eligible loans that were left out of the earlier consolidation. The typical processing time for a consolidation loan is four to eight weeks, although many loans can be completed in only one to three weeks.

Until your loan is processed, you continue to make payments on your existing loans if you are not in deferment, forbearance, or the post-school grace period. As mentioned before the first payment on your consolidation loan is due within 60 days of disbursement.

A word of caution: You are considered to be delinquent when you miss even one payment. Delinquency is when you fail to make your monthly loan payments on time. All of your payments for student loans (and credit cards) are listed on your credit report.

So, aside from late fees, your delinquencies could be reported to the national credit bureaus as negative effects on your record. These delinquencies could have a negative impact when you apply for future loans to buy a house or a car.

And if you miss any more payments, you could very easily slip into default. Loan default can have long-lasting or permanent consequences.

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