Loan Consolidation FAQ's

What is a Federal Consolidation loan?
A Federal Consolidation Loan combines several existing federal student loans into one new loan. You can lock in a single fixed interest rate and enjoy the convenience of one monthly payment.

How do I get a Federal Consolidation loan?
The application can be downloaded by clicking here or you may contact our office at 1-800-472-2166 ext. 5660 and we will mail one to you.

How long does it take to process a Federal Consolidation Loan?
It typically takes four to six weeks, although many loans can be completed in two to four weeks or can take as long as 12 weeks.

How long will I have to repay a Federal Consolidation Loan?
The term of the Federal Consolidation Loan will depend on what the principal balances of your loans are at the time they are consolidated. The higher the balance, the longer the term. The minimum repayment term is 10 years and the maximum is 30 years. The minimum monthly payment is $50; therefore, if you have a low principal balance, your loan may pay off in under 10 years. There is no penalty for paying your loan off early.

Can I consolidate a defaulted loan?
Loans that have defaulted may be eligible for consolidation as long as certain criteria are met, which are:

The holder of the defaulted loan must certify you have made satisfactory payment arrangements on the loan(s). Satisfactory payment arrangements, at a minimum, consist of three full, consecutive, voluntary, on-time payments prior to applying for a Federal Consolidation Loan.
The defaulted loan cannot be subject to a judgment or an order of administrative wage garnishment.
If there is a judgment or garnishment on the loan, the judgment must be vacated or the garnishment order must be lifted for those loans to qualify for consolidation.

Are Alternative or Private loans eligible for consolidation?
Alternative loans are NOT eligible for Federal Loan Consolidation. However, the debt can be indicated on Page 3 of the application for use in determining the length of time you have to pay back your loan. Note: Alternative loans can be consolidated in a Dakota Education Alternative Loan (DEAL) Consolidation Loan.

Can PLUS loans be consolidated?
PLUS loans qualify for consolidation only for the parent who obtained the loan on behalf of the student. Students can NOT include PLUS loans that were borrowed for them by their parents.

Can I consolidate a Federal Consolidation Loan?
If you have already consolidated all of your eligible student loans, you can NOT consolidate again. If you have a Federal Consolidation Loan and other eligible loans that have NOT been consolidated, you can consolidate them together.

Can I consolidate a Federal Direct Loan?
Federal Direct student loans can be consolidated along with outstanding student loan debt from other loan programs. (For a listing of the loans that qualify, please click here.)

What will my interest rate be?
The interest rate on your Federal Consolidation Loan is set according to federal law; it is the weighted average of the interest rates of loans being consolidated, excluding Health Education Assistance Loans (HEAL's), rounded up to the nearest one-eighth (1/8) percent. The rate is fixed for the life of the loan and cannot exceed 8.25%.

What is a weighted average?
The weighted average is determined by the current balance and the current interest rate of each loan that is being consolidated. The higher the balance, the greater "weight" is placed on the interest rate of that loan.

The following shows a weighted average interest rate calculation for a loan application received by the lender:

Step 1
Multiply the outstanding balance of each loan to be consolidated by that loan's current interest rate. A variable rate loan should be included in the calculation at the rate at which it is currently accruing. (If you are currently receiving a .25% interest rate reduction due to your monthly payments being automatic, the rate we use is the rate prior to the .25% deduction). Example: Before you set up automatic payments from your checking or savings account, your interest rate was 5.5%. You signed up for automatic payments so your interest rate went down to 5.25%. The rate used to calculate your interest rate on your Federal Consolidation Loan is 5.5%.

Example:	Outstanding loan balances are $3,500, $3,200, and $5,500 respectively---for a total of $12,200. The current interest rates for the loans are 7%, 5%, and 9%, respectively.
	$3,500 x .07 = $245 $3,200 x .05 = $160 $5,500 x .09 = $495

Step 2
Add the results of all calculations made under Step 1. Then divide this sum by the outstanding balance of all loans being consolidated.

Example:

$245 + $160 + $495 = $900
$900 ÷ $12,200 = .07377 or 7.377%

Step 3
Round the result of Step 2 up to the nearest one-eighth percent, not to exceed 8.25%.

Example:

7.377% is rounded up to 7.5%

You may also use the Loan Consolidation Worksheet to determine your estimated monthly payment amount should you decide to consolidate your loans.

I sent my Federal Consolidation Loan application before June 30th. My loan has not been consolidated, but I received a notice that my variable interest rate increased July 1st. How can that be?
The variable interest rate on the underlying loans (loans that will be included in the consolidation) will change on July 1 and you are responsible to pay the new rate. If your Federal Consolidation Loan application was in our office by June 30th, we will process the Federal Consolidation Loan using the interest rate of the underlying loans prior to July 1st. To minimize the length of time you will be responsible to pay the higher rate, it is important to submit your application as soon as possible so it can be processed quickly.

How can I benefit from consolidating my student loans?
Depending on your loan balance, you may have a longer term to pay off your Federal Consolidation Loan, which could decrease your monthly payment to a more manageable amount. Keep in mind, the longer it takes to repay your loans, the total interest costs will increase.

Can I get a deferment or forbearance on a Federal Consolidation Loan?
You will be eligible for a deferment or forbearance on the Federal Consolidation Loan as long as you meet the eligibility requirements. It is also possible that you will lose some deferment options by consolidating.

When should I consolidate my loans?
Any time you have variable rate loans that are scheduled for a rate increase. Variable rates are adjusted annually every July 1st. Variable rates also adjust when changing statuses, such as grace to repayment status. Consolidating while in grace status would fix the interest rate lower than if you apply while in repayment status.

Why should I consolidate my loans?

You do not want your variable interest rate to change every year. Remember, Federal Consolidation Loans are fixed interest rates; you will know what your interest rate is until the loan is paid in full.
You are struggling to make ends meet. Depending on your loan balance, the amount of time given to pay back your loans may increase after you consolidate, which in turn lowers your monthly payment.
You only want to make one monthly student loan payment. If you have more than one lender, you are making at least two, possibly more, monthly payments for your student loans. By consolidating all of your eligible loans with one lender, only one payment to one lender is required each month.

I am still in school. Can I take advantage of loan consolidation to lock in the interest rate?
No. The Department of Education will no longer permit borrowers who have not entered their grace period to consolidate their loans while they are still in school.

My loans are currently deferred or on forbearance. Will my Federal Consolidation Loan automatically be put on a deferment or forbearance?
No. If you qualify for a deferment or forbearance, you will need to provide our office with the proper documentation to allow us to put your Federal Consolidation Loan on a deferment or forbearance.

I have my loans set up on automatic payments. Will my new Federal Consolidation Loan be on automatic payments also?
No. Once your loan is consolidated, a new ACH form is required to set the loan up on automatic payments. Click here to access the ACH form.

I have been getting so many letters and calls from companies wanting me to consolidate my loans with them. How do I choose?
Decide what is important to your needs. Bank of North Dakota (BND) offers excellent customer service and provides an interest rate reduction if paying by ACH.

OK, I am ready to consolidate my loans, but now I do not know all of the lenders that hold my loans. Is there somewhere I can find this information?
You can access the National Student Loan Database for a listing of your lenders. Each loan you wish to include in the Federal Consolidation Loan must be listed on the application.

Page 2, Section 20, of the Federal Consolidation Loan application asks for a loan code. What does that mean?
Loan code is the type of loan you are consolidating. The codes for the loan types are on Page 6, Section D, of the application instructions.