In the U.S, there are two programs that allow students to consolidate their loans, these include: the FDLP (Federal Direct Student Loan Program) and the FFELP (Federal Family Education Loan Program). The loans that can be included within the consolidation are PLUS loans, Federal Perkins Loans and Stafford Loans. Consolidation includes reducing one's monthly payment to a more affordable fee as well as expanding the time needed in order to pay the loan back. A fixed interest rate is established for the entire loan, regardless of one's credit history and if they pay the payments on time.
Ultimately, debtors can choose a term of anywhere from 10 to 30 years. The total amount paid out is higher than that of other loans. The interest rate is ultimately decided upon based on the weighted average of all the interest rates of the existing loans being consolidated. The average is ultimately rounded to the nearest .0125 and no more than 8.25%. Other features included within the loans including grace periods are not given to the newly consolidated loan.
There are a variety of consolidation lenders. Some of the most popular US lenders include: Sallie Mae, FDLP, Next Student, Nelnet, JP Morgan Chase, Citibank & Wachovia Education. The idea of consolidation began in 1986 with the Federal Loan Consolidation Program. The change of the interest rate was established by the Congress in 1999. Any loan that was taken before that date had a specific variable interest rate that was decided upon by the FDLP loan origination center (university or college) or ultimately the FFELP lender.
The Government Accountability Office contemplated in 2005 on giving the FDLP sole discretion of consolidating loans. However, the United States Department of Education would ultimately gain another $46 million of debt because of administrative cost which would offset the savings in avoiding various subsidy costs.