Consolidation loans are a type of educational loan you can get once you're out of school which allows you to combine all the federal student loans you received into a single loan. After reading this page, we recommend that you visit Texas Guaranteed Student Loan Corporation (TG)'s Consolidation Station web site, or give TG a call at 1-800-845-6267. Since TG is not a lender, they offer a good deal of unbiased advice about consolidation loans. Also, you may contact your loan holder to find out whether a consolidation loan is a good option for you.

A consolidation loan combines several student or parent loans into one bigger loan from a single lender, which is then used to pay off the balances on the other loans. Consolidation loans are available for most federal loans, including Stafford loans and Perkins loans. You can only consolidate any given loan once, so it is important to be well informed and weigh your options carefully.

An advantage of consolidation loans, while interest rates are low, is that the borrower can 'lock in' to a low fixed interest rate on his/her loans. Instead of worrying about whether the variable Stafford loan rates will fluctuate over your repayment term, you can get a consolidation loan to secure this year's interest rate (rounded up to the nearest 1/8th of a percent) for the life of the new loan.

Another advantage consolidation loans sometimes provide is reducing the size of the monthly payment(s) on your loans by extending the term of the loan beyond the standard 10-year repayment plan. Depending on the loan amount, the term of the loan can be extended from 12 to 30 years. (10 years for less than $7,500; 12 years for $7,500 to $10,000; 15 years for $10,000 to $20,000; 20 years for $20,000 to $40,000; 25 years for $40,000 to $60,000; and 30 years for $60,000 and above.) The reduced monthly payment may make the loan easier to repay for some borrowers. However, by extending the term of a loan the total amount of interest paid is increased.

The interest rate on consolidation loans is the weighted average of the interest rates on the loans being consolidated, rounded up to the nearest 1/8th of a percent (and capped at 8.25%).

If your Stafford loans were borrowed through one lender, you are required to consolidate through that lender. If you have borrowed your Stafford loans through more than one lender, you may consolidate through any company that consolidates federal loans. It is usually a good idea to first contact your current student loan holder(s) to inquire about consolidation.

For some students, consolidation loans may not be the best option. Again, we recommend that you contact TG (1-800-845-6267) or your loan holder for more advice about these loans.