| Your college or university days may be
behind you but if you received federal
student loans from the US Department
of Education (ED) along the way you
now have to deal with paying them back.
To avoid repayment problems it's important
to learn how to manage your student
loan debt. One of the best ways is a
government student loan consolidation.
For starters consolidation allows you
to simplify the repayment process by
combining several types of federal education
loans into one government student
loan consolidation so you make just
one payment a month. The benefit to
this is that your new monthly payment
may even be lower than what you're currently
paying.
Typically student loans are paid over
a period of time between 15 and 30 years.
The interest that accompanies these
students loans is variable. The downside
to this is that with a long term plan,
in years 15 to 30 you may end up having
to pay significantly higher rates of
interest than you did in years one to
15 since interest rates traditionally
rise over time.
However, a government student loan
consolidation secures a student's
interest rate. A fixed loan program
means that students can obtain a government
student loan consolidation at an
excellent rate. For students with high
debt, this fixed interest rate loan
can literally save thousands of dollars
in interest payments over the life of
the repayment period.
The Higher Education Act (HEA) provides
for a loan consolidation program under
both the Federal Family Education Loan
(FFEL) Programs and the Direct Loan
Program. Under these programs, a borrower's
loans are paid off and a new government
student consolidation loan is created.
Both of these programs simplify loan
repayment by combining several types
of Federal education loans into one
new government student loan consolidation
product. Please note that even if your
loans have different terms and repayment
schedules or may have been by different
lenders chances are good they are still
eligible for a government student
loan consolidation.
And, the interest rate on the government
student loan consolidation may be
significantly lower than one or more
of your underlying loans. Further, the
monthly amount on a government student
loan consolidation is usually lower
as the amount of time to repay may be
extended beyond the terms of your separate
loans. The bottom line is these features
should result in a more manageable student
loan debt. Additionally borrowers who
opt for goverment student loan consolidation
are less prone to default.
- You can get
a direct consolidation loan, available
from ED, or a Federal (FFEL) Consolidation
Loan, available from participating
FFEL lenders. Under either program,
the loan holder pays off the existing
loans and makes one consolidation
loan to replace them. If you have
subsidized and unsubsidized loans,
they'll be grouped accordingly when
you initialize your government
student loan consolidation so
you won't lose your interest subsidy
on the subsidized loans.
There are three categories of direct
consolidation loans: Direct Subsidized
Consolidation Loans, Direct Unsubsidized
Consolidation Loans, and Direct PLUS
Consolidation Loans. If you have loans
from more than one category, you still
have only one direct government
student consolidation loan and
make only one monthly payment.
Under the FFEL Program, you can receive
a subsidized and/or an unsubsidized
FFEL Consolidation Loan, depending
on the types of loans you're consolidating.
(FFEL PLUS Consolidation Loans are
included under the Unsubsidized FFEL
Consolidation Loan category.)
Both FFEL and Direct Consolidation
Loans have the same interest rate, which
is a fixed rate set according to a formula
established by law. The rate is the
weighted average rate of the current
rates charged on the loans being consolidated,
rounded up to the nearest one-eighth
of a percent. This means the rate you'll
pay won't be more than one-eighth of
a percent more than the effective rate
on your individual loans. The rate is
fixed for the life of the government
student loan consolidation.
We've looked at the pros now lets look
at the cons. Although consolidation
can simplify loan repayment and might
lower your monthly payment, you should
carefully consider whether you want
to consolidate all your loans. For example,
you might lose some discharge (cancellation)
benefits if you include a Federal Perkins
Loan in a FFEL Consolidation Loan or
Direct Consolidation Loan. If that's
the case, you might want to consolidate
only your FFELs or only your Direct
Loans and not your Federal Perkins Loan(s).
You also wouldn't want to lose any
borrower benefits offered under your
existing non-consolidated loans, such
as interest rate discounts or principal
rebates, which can significantly reduce
the cost of repaying your loans.
Further, you can have a longer
period of time to repay your government
student loan consolidation than
you do for the individual student loans
you're repaying, but this also means
you'll pay more interest over time.
In some cases, consolidation can double
total interest expense. If monthly payment
relief isn't a top priority, you should
compare the cost of repaying your unconsolidated
loans against the cost of repaying a
government student loan consolidation.
Once finalized,
government student loan consolidation
can't be undone. Bear in mind the loans
that were consolidated have been paid
off and no longer exist.
The bottom line is that it's best to
take the time to study your government
student loan consolidation options
before you apply.
For more details on government student
loan consolidation, contact your
loan holder(s).
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