Consolidating Student Loans
Consolidating Student Loans: For many students, loan consolidation can be a convenient and beneficial way to adjust their repayment of loans. Consolidation involves combining multiple Federal student loans into one loan. This allows students to make one monthly payment, instead of being responsible for multiple payments each month. Consolidation can have the effect of lowering monthly payments and extending repayment time up to 30 years. It can also result in a lower interest rate than your initial loans. There are two types of consolidation loans: Federal Family Education Loan (FFEL) Consolidation Loans and Direct Consolidation Loans.
Even student who are currently in default on their student loans could be eligible for consolidation. Federal Perkins Loans, Direct Stafford Loans, FFEL Stafford Loans, and PLUS Loans are all eligible to be consolidated, and other loans besides these may be eligible to be included in the consolidation. It is possible to consolidate during your grace period, during repayment, or during deferment or forbearance. It may be possible to receive a consolidation loan while you're still attending school, but it will depend on certain conditions.
In order to receive a FFEL Consolidation Loan, you or your parents should get in touch with your lender's consolidation department and ask for an application. If you lender holds all your loans, you are usually required to consolidate through that lender. To receive a Direct Consolidation Loan, you or your parents should contact the Direct Loan Origination Center's Consolidation Department.
Unlike Direct and FFEL Stafford Loans, which have variable interest rates, Direct and FFEL Consolidation Loans have a fixed rate for the entire life of the loan. This fixed interest rate never exceeds 8.25% and is based on the weighted average of your consolidated loans' interest rates.
When deciding whether to consolidate student loans, it is important to note that there could be some disadvantages involved. The most striking disadvantage is that consolidation increases the total cost of repaying your loans. Although you may pay less each month and be able to extend your repayment period, you'll pay more money in the end. This is partially because the life of the loan is extended, creating more interest you'll be required to pay. Consolidation has the potential to double the amount of money you pay in interest.
Students are given much of the information they need about loan consolidation during entrance and exit interviews with their school's financial aid office. It is always possible to get additional information from the lenders themselves. Consolidation offers many advantages for many students and can significantly ease the immediate burden of loan repayment. But it is not a decision to be taken lightly. Learn as much as you can from your school and your lenders, and remember to take all the factors into consideration when deciding whether to consolidate.
