Consolidated loans are included in your borrowing history, affecting the total amount of your student loan debt and the amount of remaining federal student loan money available. Both subsidized and unsubsidized loans have annual and aggregate borrowing limits. In some situations, consolidation may help you regain eligibility for additional loans.
Loan consolidation combines multiple student loans into a single loan. This is done for various reasons, but mainly because it is simpler to manage one loan compared with many. The U.S. Department of Education offers loan consolidation for federal student loans through its direct consolidation loan program at no cost. Borrowers can learn more about loan consolidation or apply for loan consolidation directly at the Direct Consolidation Loans website (see References). The interest rate on a consolidation loan is the weighted average of the multiple loans. Private loans are not eligible for loan consolidation. Some benefits may be lost on certain loans after consolidation, so always weigh the benefits and costs before consolidating.
Dependent Loan Limits
The amount you can borrow in student loans depends on several factors, including whether you are a dependent or on your own, the year you are in school and the tuition costs at your school. However, despite what you might be eligible to receive, you cannot exceed annual and aggregate loan limits. The annual limit for dependent students in 2013 is $5,500 for a first-year undergraduate, $6,500 for second-year undergraduate, and $7,500 for third-year and beyond undergraduate. The aggregate loan limit, the lifetime limit, for undergraduates is $31,000, of which $23,000 can be subsidized loans. Consolidated loans count toward these limits.
Non-Dependent Loan Limits
The annual limits for non-dependent students in 2013 are $9,500 for first-year undergraduate, $10,500 second-year undergraduate, $12,500 third-year and beyond undergraduate, and $20,500 for graduate or professional students. The aggregate loan limit, the lifetime limit, for undergraduates is $57,500, of which $23,000 can be subsidized loans. Graduate and professional students are automatically considered non-dependent students, so any federal loans they receive as an undergraduate, including consolidated loans, are counted toward the maximum lifetime limit. The aggregate for graduate or professional students is $138,500, of which $65,500 can be subsidized.
Fixing Problems with Consolidation
Loan consolidation offers student borrowers a solution for resolving financial aid problems caused by inadvertently over-borrowing or defaulting on a federal student loan. In the case of a defaulted student loan, you can get out of default by making three payments, then qualifying to include the defaulted loan in a consolidation loan. This pays off the defaulted loan and rejuvenates it. If you over-borrow on your current student loans and become ineligible for federal student aid, including grants in the total, you can reactivate the overage through a consolidation loan to regain federal student aid eligibility.
Consolidate New Loans
Once you consolidate your loans, you cannot reconsolidate them. You must have at least one eligible loan that is not already consolidated to be eligible for a new consolidation loan. You can add new eligible student loans to an existing consolidation loan for up to 180 days after your original loan consolidation date.
- FinAid: Student Loan Consolidation
- MSN Money: When Should You Consolidate Debt?
- U.S. Department of Education: Direct Consolidation Loan Guide for Schools
- U.S. Department of Education: A Borrower’s Guide to Direct Consolidation Loans
- Federal Student Aid: Loan Consolidation
- Federal Student Aid: Subsidized and Unsubsidized Loans
- Federal Student Aid: Getting Out of Default
- Direct Consolidation Loan: FAQs
- Federal Student Aid. "Consolidating Your Federal Education Loans Can Simplify Your Payments, but It Also Can Result in the Loss of Some Benefits." Accessed April 6, 2020.
- SoFi. "Consolidate vs. Refinance." Accessed April 6, 2020.
- Benefits.gov. "Education Loan Consolidation." Accessed April 6, 2020.
- Federal Student Aid. "Get Temporary Relief." Accessed April 6, 2020.
- Federal Student Aid. "If Your Loan Servicer Receives Acceptable Documentation of Your Death, Your Federal Student Loans Will Be Discharged." Accessed April 6, 2020.
- SoFi. "What Is a Direct Consolidation Loan?" Accessed April 6, 2020.
- Federal Student Aid. "If Your Federal Student Loan Payments Are High Compared to Your Income, You May Want to Repay Your Loans Under an Income-Driven Repayment Plan." Accessed April 6, 2020.
- Federal Student Aid. "Public Service Loan Forgiveness (PSLF)." Accessed April 6, 2020.
- SoFi. "Consolidating Student Loans with a Spouse." Accessed April 6, 2020.
- Congressman David Price. "Price Introduces Bipartisan, Bicameral Legislation to Provide Borrowers Relief from Joint Consolidation Loans." Accessed April 6, 2020.
Sara Mahuron specializes in adult/higher education, parenting, budget travel and personal finance. She earned an M.S. in adult/organizational learning and leadership, as well as an Ed.S. in educational leadership, both from the University of Idaho. Mahuron also holds a B.S. in psychology and a B.A. in international studies-business and economics.