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If the lender delays disbursing the consolidation loan until the end of the grace period, however, the student gets to retain most of the grace period. (This loophole is also known as the "delayed disbursement" loophole.)

For borrowers with variable rate loans, guidance published by the US Department of Education (Dear Colleague Letters FP-06-09 and GEN-05-08) indicated that lenders can choose the interest rate in effect when the lender received the student's "substantially complete" consolidation application or when the lender disbursed the loan, whichever is lower. This allows the borrower to lock in a lower interest rate while still retaining the grace period. For example, if the student submits the consolidation application before July 1, and the lender disburses the payoff amounts to the current holders of the student's loans at the end of the grace period, the student gets to lock in pre-July 1 interest rates and also retain the remainder of their grace period.

(The Department's guidance is based on ambiguity in the Higher Education Act regarding whether the interest rate on a consolidation loan is based on the interest rates in effect when the borrower applies for the consolidation loan or when the lender disburses the consolidation loan. The repayment obligation begins within 60 days of the disbursement of the consolidation loan, per 428C(c)(4).)