Loan Consolidation For Students, Explained
A federal student loan consolidation program is a federally regulated loan that allows
you to combine all of the existing federal loans you received for your education into one new single loan. When you do a student loan consolidation, the new lender will arrange to have all your existing loans fully paid off and issue you one new loan. Generally there are no application fees or credit checks required for consolidation loans and by consolidating your loans you can benefit in the following ways:
Lower monthly payments. By consolidating your federal student loans, you can take advantage of lowering your monthly payments which will give you more money to use for other expenses such as rent or mortgage payments, food and car expenses, utility expenses, and credit card payments. Depending on your balances, you might be able to reduce your monthly payments up to 45%.
One payment per month. If you currently have loans with multiple lenders, you know the hassle of having to write several checks per month, each for a different amount and to a different lender. By consolidating, you eliminate the need to make multiple monthly payments. You will only have to write one check or make one payment each month!
Lock in a low fixed interest rate. Currently, unconsolidated federal student loans have a variable interest rate which changes each year. By consolidating, you can lock in a fixed interest rate which remains constant through the life of the loan.
Customize a Payment Plan. By consolidating your student loans, you have the opportunity choose a payment plan and payment term that fits best with your current income. In some cases you can take up to 30 years to repay and you can change the plan annually without any penalties. In addition, if you decide you would like to repay your loans early, there are no prepayment penalties.
Maintain your deferment and interest subsidy benefits. By consolidating your loans, you do not give up your deferment options or interest subsidy benefits on any subsidized FFELP or subsidized Direct loans that you consolidate.
When Should I Consolidate
You can do a student loan consolidation during your grace period or during repayment. You might even get to do a consolidation before you graduate. The timing depends on a variety of factors.
Consolidating during the grace period may get you a lower rate
You don't want to consolidate too soon after graduation. If you do, you might lose out on some interest subsidies
If you think interest rates are low, you might lock in the rate
If you want a lower monthly payment today, you might try to get an extended repayment plan
Federal Loans Eligible for Student Loan Consolidation
Many federal student loans already have a low interest rate. However, you may be able to achieve a lower payment by consolidating these student loans. Here is a list of federal loans that are normally eligible for student loan consolidation:
Federal Stafford Loans
Federal Direct Loans
Federal Perkins Loans
Federal Supplemental Loans for Students (SLS)
Federally Insured Student Loans (FISL)
National Direct Student Loans (NDSL)
Federal Parent Loans for Undergraduate Students (PLUS)
Loans for Disadvantaged Students (LDS)
Auxiliary Loan to Assist Students (ALAS)
Health Education Assistance Loan (HEAL)
Student loan consolidation could benefit you, but evaluate the amount and types of student loans that you are carrying, and then see if you can consolidate and cut your payments and debts.
Loan Consolidation For Students, Explained
By: Judd Snell
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