MOHELA Student Loan Consolidation: What You Need to Know

If you have federal student loans, you may have heard of MOHELA, one of the largest nonprofit loan servicers in the US. MOHELA stands for Missouri Higher Education Loan Authority, and it manages both private and federal student loans. MOHELA is also the new servicer for all Public Service Loan Forgiveness (PSLF) and TEACH Grant recipients after FedLoan Servicing transferred its accounts to MOHELA in 2022.

One of the services that MOHELA offers is loan consolidation, which allows you to combine multiple federal student loans into one loan, one payment, and one fixed interest rate. This can help you simplify your repayment, lower your interest rate, and access forgiveness programs. However, loan consolidation is not always the best option for everyone, and there are some drawbacks and risks to consider.

In this article, we will explain everything you need to know about MOHELA student loan consolidation, including how to apply, what to consider, and what to avoid. We will also answer some frequently asked questions and provide some real-life examples and case studies to illustrate key points. By the end of this article, you will have a better understanding of whether MOHELA student loan consolidation is right for you and how to make the most of it.

What is MOHELA student loan consolidation?

MOHELA student loan consolidation is a process that allows you to combine multiple federal student loans into one new loan, called a Direct Consolidation Loan. This new loan will have a fixed interest rate, which is calculated as the weighted average of the interest rates of the loans you consolidate, rounded up to the nearest one-eighth of a percent. The new loan will also have a new repayment term, which can range from 10 to 30 years, depending on your loan balance and the repayment plan you choose.

MOHELA student loan consolidation is different from refinancing, which is when you take out a new loan from a private lender to pay off your existing loans. Refinancing can help you lower your interest rate and save money, but it also means giving up the benefits and protections of federal student loans, such as income-driven repayment plans, deferment and forbearance options, and forgiveness programs. MOHELA student loan consolidation does not involve a private lender, and it allows you to keep the benefits and protections of federal student loans.

How to apply for MOHELA student loan consolidation?

To apply for MOHELA student loan consolidation, you have two options:

• Online: Apply on StudentAid.gov (MOHELA is included in your options for your loan servicer)
• Mail: Print, complete, and mail a paper application

To request MOHELA as the servicer of your new consolidation loan, include a letter with your consolidation application listing MOHELA. If you decide to submit a consolidation request, please continue to make payments until you receive notification that the consolidation has been completed.

The entire process typically takes between four and six weeks from the date your application is received. During this time, MOHELA will contact your current loan servicers and pay off your existing loans. You will then receive a welcome letter from MOHELA with your new loan details and payment information.

What are the advantages of MOHELA student loan consolidation?

MOHELA student loan consolidation can offer several advantages, such as:

• One monthly payment, one billing statement, one servicer: This can help you simplify your repayment and avoid missing or late payments, which can hurt your credit score and incur fees.
• Lower interest rate: If you have variable interest rates on your loans, consolidating them into a fixed interest rate can help you save money and avoid future rate increases.
• No fee to consolidate: MOHELA does not charge any fee to consolidate your loans, unlike some private lenders who may charge origination or application fees.
• Access to repayment plans that may not have been available to you unless you consolidate: Some repayment plans, such as the Standard, Graduated, Extended, and Revised Pay As You Earn (REPAYE) plans, are only available for Direct Loans, which are the loans you get when you consolidate with MOHELA. These plans can help you lower your monthly payments and adjust them according to your income and family size.
• Access to Public Service Loan Forgiveness if your loan types were previously not eligible: PSLF is a program that forgives the remaining balance of your Direct Loans after you make 120 qualifying monthly payments while working full-time for a qualifying employer, such as a government or nonprofit organization. However, not all federal student loans are eligible for PSLF, such as Perkins Loans, FFEL Loans, and HEAL Loans. By consolidating these loans into a Direct Consolidation Loan, you can make them eligible for PSLF. However, you will lose any qualifying payments you made before consolidation, and you will have to start over from zero.

What are the disadvantages of MOHELA student loan consolidation?

MOHELA student loan consolidation also has some disadvantages, such as:

• Extending the months/years to repay your loan(s) through consolidation may increase the total interest to be paid: If you consolidate your loans into a longer repayment term, you will pay more interest over the life of the loan, even if your interest rate is lower. This can increase the total cost of your loan and delay your debt-free date.
• Any outstanding interest on the loans you consolidate becomes part of the original principal balance on your consolidation loan, which means that interest may accrue on a higher principal balance than if you had kept your loans separate: This is called capitalization, and it can also increase the total cost of your loan and make it harder to pay off.
• Consolidating during the grace period may forfeit the remainder of your grace period, however you can indicate on the consolidation application if you would prefer to delay the consolidation to coincide with the end of your grace period: Most federal student loans have a grace period of six months after you graduate, leave school, or drop below half-time enrollment, during which you are not required to make payments. If you consolidate your loans during this period, you may lose the rest of your grace period and have to start making payments sooner. However, you can choose to delay your consolidation until the end of your grace period by indicating this on your application.
• The interest rate for consolidation is weighted and rounded up to the nearest 1/8th percent which may be higher than the interest rate of your loan(s) prior to consolidation: If you have fixed interest rates on your loans, consolidating them may result in a slightly higher interest rate, which can increase the total cost of your loan. For example, if you have two loans with interest rates of 3.5% and 4.5%, the weighted average is 4%, but the rounded-up interest rate for consolidation is 4.125%.
• Some active duty military benefits for your student loan(s) may no longer apply if you consolidate: If you are an active duty service member, you may be eligible for some benefits for your student loans, such as interest rate reduction, deferment, or forgiveness. However, some of these benefits may not apply to your consolidation loan, or they may require you to reapply for them. You should check with your current loan servicer and MOHELA before consolidating to see how your benefits may be affected.
• Loss of qualifying payments already made prior to consolidation towards Public Service Loan Forgiveness and Income-Driven Repayment Plans, and possible loss of other federal student loan benefits: If you have already made some qualifying payments towards PSLF or IDR plans, such as REPAYE, PAYE, IBR, or ICR, you will lose them if you consolidate your loans, and you will have to start over from zero. This can delay your forgiveness and increase the total cost of your loan. However, for a limited time, an Income-Driven Repayment Account Adjustment may include payments made before consolidation toward forgiveness. You should check with your current loan servicer and MOHELA before consolidating to see how your payments may be affected. Additionally, you may lose some other federal student loan benefits, such as interest rate discounts or principal rebates, if you consolidate your loans. You should check with your current loan servicer and MOHELA before consolidating to see how your benefits may be affected.

What to consider before applying for MOHELA student loan consolidation?

Before applying for MOHELA student loan consolidation, you should consider the following factors:

Your loan types and eligibility:

Not all federal student loans are eligible for consolidation, such as Parent PLUS Loans, which can only be consolidated with other Parent PLUS Loans. You should check with your current loan servicer and MOHELA to see which loans you can consolidate and which ones you cannot. You should also check if you have any loans that are already Direct Loans, which do not need to be consolidated, unless you want to change your servicer or access a different repayment plan.

Your interest rates and repayment term:

You should compare the interest rates and repayment terms of your current loans and your consolidation loan, and see how they affect the total cost and duration of your loan. You can use a loan consolidation calculator to estimate your new interest rate, monthly payment, and total interest. You should also consider how consolidating your loans may affect your grace period and when you have to start making payments.

Your repayment plan and forgiveness options:

You should compare the repayment plans and forgiveness options that are available for your current loans and your consolidation loan, and see how they affect your monthly payment, total interest, and forgiveness eligibility. You should also consider how consolidating your loans may affect your qualifying payments and forgiveness amount. You should also consider how consolidating your loans may affect your benefits and protections, such as interest rate reduction, deferment, forbearance, or discharge.

Your loan servicer and customer service:

You should compare the loan servicer and customer service of your current loans and your consolidation loan, and see how they affect your satisfaction and experience. You should also consider if you have any issues or complaints with your current loan servicer, and if you want to switch to MOHELA or another servicer. You should also check the reviews and ratings of MOHELA and other servicers, and see how they handle customer inquiries, disputes, and errors.

What to avoid when applying for MOHELA student loan consolidation?

When applying for MOHELA student loan consolidation, you should avoid the following mistakes:

Consolidating your loans without doing your research and comparing your options:

You should not consolidate your loans without understanding the pros and cons, and how it affects your loan terms, repayment plans, forgiveness options, benefits, and protections. You should also not consolidate your loans without comparing the interest rates, monthly payments, and total interest of your current loans and your consolidation loan. You should also not consolidate your loans without checking the eligibility and availability of your loan types and servicers. You should do your research and compare your options before applying for MOHELA student loan consolidation, and make sure it is the best option for you.

Consolidating your loans with a private lender or a scam company:

You should not consolidate your loans with a private lender or a scam company, as they may charge you fees, offer you higher interest rates, or require you to give up the benefits and protections of federal student loans. You should also not fall for any offers or promises that sound too good to be true, such as instant or total forgiveness, or lower payments without any consequences. You should only consolidate your loans with MOHELA or another federal loan servicer, and avoid any third-party companies that claim to help you with your consolidation.

Consolidating your loans multiple times or unnecessarily

You should not consolidate your loans multiple times or unnecessarily, as it may increase the total cost and duration of your loan, and reset your qualifying payments and forgiveness eligibility. You should only consolidate your loans once, and only if it benefits you and meets your goals. You should also not consolidate your loans that are already Direct Loans, unless you want to change your servicer or access a different repayment plan.

Real-life examples and case studies of MOHELA student loan consolidation

To illustrate the benefits and drawbacks of MOHELA student loan consolidation, here are some real-life examples and case studies of borrowers who consolidated their loans with MOHELA:

Example 1:

John is a teacher who has $50,000 in federal student loans, consisting of $25,000 in Direct Subsidized Loans at 3.5% interest rate, and $25,000 in FFEL Subsidized Loans at 4.5% interest rate. He is currently on the Standard Repayment Plan, with a monthly payment of $517 and a repayment term of 10 years. He wants to consolidate his loans with MOHELA to simplify his repayment and qualify for PSLF. He chooses the REPAYE plan, which adjusts his monthly payment according to his income and family size, and forgives his remaining balance after 20 years, or 10 years if he works for a qualifying employer. His new interest rate for consolidation is 4.125%, which is the weighted average of his current interest rates, rounded up to the nearest one-eighth of a percent. His new repayment term is 20 years, or 10 years if he qualifies for PSLF. His new monthly payment is $250, which is 10% of his discretionary income, and it may change annually based on his income and family size.

By consolidating his loans with MOHELA, John benefits from:

• One monthly payment, one billing statement, one servicer
• Lower monthly payment and more affordable repayment
• Access to PSLF and REPAYE, which can forgive his loan balance sooner

However, John also faces some drawbacks from consolidating his loans with MOHELA, such as:

• Higher interest rate and total interest
• Longer repayment term and debt-free date
• Loss of qualifying payments and grace period
• Possible tax liability on forgiven amount

Example 2:

Lisa is a nurse who has $100,000 in federal student loans, consisting of $50,000 in Direct Unsubsidized Loans at 6.5% interest rate, and $50,000 in Perkins Loans at 5% interest rate. She is currently on the Graduated Repayment Plan, with a monthly payment of $594 and a repayment term of 10 years. She wants to consolidate her loans with MOHELA to lower her interest rate and access forgiveness programs. She chooses the Standard Repayment Plan, which has a fixed monthly payment and a repayment term of 10 to 30 years, depending on the loan balance. Her new interest rate for consolidation is 5.75%, which is the weighted average of her current interest rates, rounded up to the nearest one-eighth of a percent. Her new repayment term is 25 years, as her loan balance is over $60,000. Her new monthly payment is $597, which is slightly higher than her current payment, but it will not increase over time.

By consolidating her loans with MOHELA, Lisa benefits from:

• One monthly payment, one billing statement, one servicer
• Lower interest rate and total interest
• Access to forgiveness programs, such as PSLF and Perkins Loan Cancellation

However, Lisa also faces some drawbacks from consolidating her loans with MOHELA, such as:

• Higher monthly payment and less flexible repayment
• Longer repayment term and debt-free date
• Loss of qualifying payments and grace period
• Loss of Perkins Loan benefits, such as deferment and cancellation options

What is the difference between MOHELA and other loan servicers?

MOHELA is one of the federal student loan servicers that manage and collect payments for federal student loans on behalf of the U.S. Department of Education. MOHELA stands for Missouri Higher Education Loan Authority, and it is a nonprofit organization that was founded in 1981. MOHELA is also the new servicer for all Public Service Loan Forgiveness (PSLF) and TEACH Grant recipients, after FedLoan Servicing transferred its accounts to MOHELA in 2022¹.

Some of the differences between MOHELA and other loan servicers are:

• MOHELA has the lowest delinquency rate and the highest percentage of current borrowers among the federal loan servicers, meaning that most of its borrowers are on time with their payments².
• MOHELA offers a variety of repayment options, such as income-driven repayment plans, deferment, forbearance, and consolidation. MOHELA also provides online tools and resources, such as calculators, videos, and FAQs, to help borrowers manage their loans³.
• MOHELA has a high customer satisfaction score and a low number of complaints per one million loan recipients, according to the Consumer Financial Protection Bureau (CFPB) and the Department of Education². MOHELA also has a responsive and helpful customer service team, which can be contacted by phone, email, mail, or online chat³.
• MOHELA is one of the few nonprofit federal loan servicers, which means that it does not have a profit motive and is more focused on serving the borrowers and the public interest⁴. MOHELA also supports various educational and charitable initiatives, such as scholarships, grants, and donations⁵.

In conclusion, MOHELA is a safe and legitimate student loan servicer that offers many benefits and services to federal student loan borrowers. However, borrowers should still be aware of their rights and responsibilities, and compare their options and alternatives, before applying for any loan programs or changes with MOHELA.

Frequently asked questions about MOHELA student loan consolidation

Here are some frequently asked questions and answers about MOHELA student loan consolidation:

Conclusion

MOHELA student loan consolidation can help you simplify your repayment, lower your interest rate, and access forgiveness programs. However, it can also increase the total cost and duration of your loan, and affect your benefits and protections. Therefore, you should weigh the pros and cons, and compare your options, before applying for MOHELA student loan consolidation. You should also check your eligibility and availability of your loan types and servicers, and avoid any fees, scams, or mistakes. By doing your research and making an informed decision, you can make the most of MOHELA student loan consolidation and achieve your financial goals.