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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). |
