Consolidation Education - What Are These Programs?

Consolidation Education

As you struggle to pay off your student loan for your college education you may want to consider the United States' federal debt consolidation loan program.

The federal Higher Education Act (HEA) offers a program for loan consolidation program under the auspices of two loan programs - the Direct Loan and the Federal Family Education Loan (FFEL). Through this consolidation plan the student's loans are paid in full and then a brand new consolidation loan is put into place.

What these programs do is make loan payment simpler through a combination of several loans. Simplification happens because the various loans quite probably have varying terms and schedules of repayment, all to different lending facilities.

Quite often the interest rate on the new consolidation is less than the median rate of the prior student loans. The student borrower could end up with a lower monthly payment as well as an extended repayment time period. Not only will it make the debt easier to pay for the borrower but also afford the federal agency more likelihood of payment in full rather than default.

When making the determination of consolidation of student loan payments you might be wise to consider these factors:

What interest rates are you paying on your current student loans? If a consolidation of these loans will offer a lower rate you may want to consider it. Now, the interest rate for the government's direct consolidation program is determined by the weighted average of the interest rate of the loans that are being consolidated, rounded off to the next highest one eighth of a percent. This is a fixed rate, and will not ever be more than 8.25 percent.

Can you manage your current monthly loan payments? If the answer is no and you have already taken advantage of any deferred payment or forbearance option your lenders offer you may be wise to consider consolidation as a way of avoiding default.

Is the total cost of the loan, over time, a large factor in your decision? One negative of student loan consolidation is that if you take advantage of the option to extend the life of the loan you will end up paying a larger total. This may be a grave concern to you.

How long do you have until your loans are repaid? Even should you be struggling to make your monthly payments if you are getting close to the time when your loans will be paid off, consolidation may not be a good choice for you.
What alternative options might your current lending institutions have available? Before you look at consolidation, or in addition to considering consolidation, you would do well to ask your current lenders what other options, such as change of term or payment they might offer.

Another thing to keep in mind is that not all student loans qualify for the federal consolidation loan program. The ones that do are Plus loans both Direct and Federal, U.S. Stafford loans whether subsidized or not; Direct loans whether subsidized or not; any Direct or Federal consolidation loan, any student loan that is federally insured; U.S. government student Supplemental Loans, and Auxiliary loans for student assistance. A U.S. Perkins loan, a national direct student loan and a national defense student loan are eligible, as well as a loan for health education assistance, for health professions students, the federal loan for disadvantaged students, and the U.S. Nursing Student Loan program.

Plus loans have a restriction for eligibility, however. They can only be federally consolidated if the student's parent is the borrower and has also borrowed by way of other loans also eligible, for that same semester or year of the student's education.

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