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Borrowers in default may also consolidate in certain circumstances.
Consolidation was previously available to borrowers while they were still in school. Congress also eliminated joint consolidation for spouses, effective July 1, 2006.
It’s typically considered for people who have high consumer debt.
But most of the time, after someone consolidates their debt, the debt grows back. They still don’t have a game plan to pay cash and spend less.
Debt consolidation seems appealing because, in most cases, there’s a lower interest rate on parts of the debt, and it usually includes a lower payment.
But, in almost every case, the lower payment exists because the term gets extended, not because the debt is less.
You can’t borrow your way out of debt in the same way you can’t get out of a hole by digging out the bottom.
Getting out of debt isn’t quick or easy, but it’s the first step to achieving lasting financial health. It simply means you’re taking out one loan to pay off a bunch of loans—or consolidating the debt to one payment.
Consolidating federal student loans may be a good strategy to lower monthly payments or to get out of default, but it is not always a good idea.
WARNING: It is very dangerous to consolidate federal loans into a private consolidation loan.
You will lose your rights under the federal loan programs once you choose to consolidate with a private lender.
This means, for example, that a Perkins Loan on its own cannot be consolidated into a Direct Loan.
You may consolidate with Direct Loans during grace periods, once you have entered repayment, or during periods of deferment or forbearance.
The good news is that the Department explains on its web site that if any loan you want to consolidate is still in the grace period, you can delay entering repayment on your new Direct Consolidation Loan until closer to your grace period end date.