Will consolidating my student loans increase my credit score

21 Oct

To be eligible for Federal Loan Consolidation, borrowers must have at least one loan from the Federal Direct Loan program or Federal Family Education Loan (FFEL) program that is not in an “in-school” status.

Defaulted loans may be consolidated in certain circumstances.

Married borrowers may not consolidate their loans together, nor may a student’s Direct Loans be consolidated with the parent’s Parent PLUS Loan.

(A parent who has a Parent PLUS Loan borrowed to pay for a child’s education and a Direct Loan borrowed to pay for the parent’s education may consolidate those loans together.) Previously, married borrowers could consolidate their loans together.

Because there are no penalties for prepaying the loan in full or in part, borrowers may make larger monthly payments or extra payments if they wish.

Borrowers may also change repayment plans at least once a year.

Federal education loans also offer death and disability discharges; only a handful of private student loan programs offer similar discharge options.

For example, if the borrower rehabilitates the loan by making satisfactory repayment arrangements through his/her loan servicer, he/she may be eligible to consolidate the loans.

Also, borrowers may rehabilitate defaulted loans by consolidating them and agreeing to repay them in the income-based repayment plan.

While one could use a private consolidation loan to refinance federal education loans, this is generally not recommended.

Usually the federal education loans have lower fixed interest rates, so a private consolidation loan may cost the borrower more.