Loan consolidation helps those people who can no longer defer or forbear and want to avoid default. This also allows a single payment one time of the month to one lender. Another plus is that the interest rate is fixed and is typically based on the weighted average of the interest rates of the loans being consolidated. If a person is already close to paying off the loans, it may not be worth consolidating them.
A person trying to qualify for the government's Direct Consolidation Loan program must have one direct loan or Federal Family Education Loan (FFEL) that is either in grace, repayment, deferment or default status. A person who is still in school and applies for this program on or after July 1, 2010, and before July 1, 2011, is able to qualify for consolidation of loans that are in an in-school status.
Both students and parents are able to consolidate their loans with any lender, even if they are from one single lender. Yet they must consolidate separately, because consolidation is handled one borrower at a time. According to the Higher Education Reconciliation Act of 2005, married students are not able to consolidate their loans together because if they divorce they would not be able to divide the loan payments. A person can use any lender, thus allowing for the borrower to chose among the lowest rates. Most lenders require a minimum balance between $5,000 to $7,500. If a person uses the Federal Direct Consolidation Loan program, the borrower does not need a minimum balance.
There are several types of loans available for students and parents, yet only some are available for loan consolidation. The following are available for loan consolidation: Stafford, PLUS, SLS (Specialized Loan Servicing), Federal Insured Student Loans (FISL), Perkins, Health Professional Student Loans, Nursing Student Loans (NSL), Health Education Assistance Loan (HEAL), and guaranteed student loans and direct loans. Some private education loans can be consolidated, depending on the lender.