federal loan consolidation

The Higher Education Act (HEA) provides for a loan consolidation program under both the Federal Family Education Loan (FFEL) Programs and the Direct Loan Program. Under these programs, a borrower’s loans are paid off and a new consolidation loan is created. These programs simplify loan repayment by combining several types of Federal education loans (that may have different terms and repayment schedules or may have been made by different lenders) into one new loan. The interest rate may be lower than on one or more of the underlying loans. In addition, the monthly payment amount on a consolidation loan is usually lower and the amount of time to repay may be extended beyond what was available in the separate loan programs. These features should result in more manageable debt and should make borrowers less prone to default.

Account
A grouping of one or more Direct Loans disbursed by the U.S. Department of Education. Borrowers can have one or more accounts. Each account has a unique number assigned to identify it. The format of an account number is your Social Security Number (SSN) plus a one-digit identifier added to the end (e.g., 123-45-6789-1). If you receive a notice that affects all of your possible accounts, the account number on the notice may be abbreviated to the Social Security Number only.

Accrue
The process whereby interest accumulates on your loan. When we speak of "interest accruing on your loan," we mean that the interest due on your loan is accumulating.

Borrower
Individual who signed and agreed to the terms in the promissory note and is responsible for repaying a loan.

Cancellation
Some student loan programs allow for all or part of the total loan principal and accrued interest to be canceled in certain circumstances. A canceled loan may also be referred to as a "discharged loan."

Capitalization
Adding unpaid accrued interest to the principal balance. Capitalizing interest increases the principal amount of the loan and the total cost of the loan. This occurs at the end of a deferment, forbearance, or grace period on Unsubsidized Loans, and at the end of a forbearance period on a Subsidized Loan.

Collection Costs
When a defaulted Direct Loan or FFEL is included in a Direct Consolidation Loan, collection costs of up to 18.5 percent of the outstanding principal and interest are added to the outstanding balance. When defaulted Perkins Loans and Health and Human Service (HHS) loans are consolidated, collection costs are also added. However, collection costs on these loans may exceed 18.5 percent of the outstanding principal and interest.

Consolidation
The process of combining one or more eligible educational loans into a single new loan. The Direct Loan Program offers a Direct Consolidation Loan for those borrowers who are interested in consolidating their eligible educational loans.

Consolidation Hold
Delays the processing of your Direct Consolidation Loan until closer to the end of your grace period if any of the loans you want to consolidate are in a grace period.