Student loans can be a real pain to manage considering you’re paying more than one – especially if you’re behind on it (we hope). Federal student aid programs provide a way to manage your debt in a streamlined manner, while potentially reducing month payments. This guide will walk you through the ins and outs of loan consolidation, and all the ways that federal student loans allow you to do so.
What Is Loan Consolidation?
Loan consolidation is when you take out a single loan to pay off all your different federal student loans with one monthly payment. If you participate in the Direct Consolidation Loan program, offered by the U.S. Department of Education, you get a simplified loan management plus additional repayment options.
Taking into account the borrowing risk, there are following benefits of loan consolidation:
1. Simplification
1. Easier repayment
2. Reduced interest rates
3. Debt relief
Single Monthly Payment: You no longer need to worry about keeping multiple loan accounts in good order; all of them are updated into one payment.
Fixed Interest Rate: Your consolidated loan has a fixed interest rate that is an average of your original loans, rounded up to the next one-eighth of a percent.
Repayment Plan Options: And have access to income driven repayment plans, and extended repayment terms.
Loan Forgiveness Eligibility: You may also make some loans eligible for Public Service Loan Forgiveness (PSLF).
Federal Eligibility for Student Loans
Before consolidating your loans, know what eligibility requirements for federal student loans look like.
1. Eligible Loans:
- Direct Subsidized and Unsubsidized Loans..
- Federal Family Education Loan (FFEL) Program Loans
- Perkins Loans
- Direct Loan or FFEL Program PLUS Loans
- Direct Consolidation Loans that already exist (under certain conditions)
2. Ineligible Loans:
- Private student loans
- Loans already in default with no acceptable repayment plan
3. Borrower Requirements:
- Borrowers must not be in default and must have an acceptable agreement for satisfactory repayment plan.
- All loans have to be in a repayment or grace period.
Federal Loan Consolidation Application
Consolidating federal student loans is easy to do. Follow these steps:
1. Evaluate Your Loans:
List federal loans you wish to consolidate.
Check your loan details via the National Student Loan Data System (NSLDS).
2. Visit the Federal Student Aid Website:
Go to studentaid.gov and log in with your FSA ID.
3. Complete the Application:
You have to Fill out the Direct Consolidation Loan Application and Promissory Note.
Pick a payment plan that suits your money aims.
4. Review and Submit:
This means carefully reviewing your application and it must be accurate.
If such is the case, fill out the application online or mail it in.
5. Await Loan Servicer Assignment:
Your loan will be combined when approved, and your new loan servicer will take over from there.
Repayment Options
Accessed via federal loan consolidation are several repayment plans. The most popular options include:
Standard Repayment Plan: Over 10 years, fixed monthly payments.
Income-Driven Repayment Plans: It’s based on your income and family size, with up to 20 or 25 years of forgiveness.
Graduated Repayment Plan: Payments begin low and will increase every two years.
Extended Repayment Plan: The payments can be fixed or graduated over 25 years.
Loan Service Pros and Cons
Pros:
- Simplifies loan management.
- It offers new repayment options.
- May reduce monthly payments.
Cons:
- Overall interest costs may increase on extended repayment terms.
- May forfeit borrower benefits received with original loans (interest rate discounts).
- Payments made toward PSLF do not carry forward.
What is Federal Student Loan Consolidation?
Q: Does it lower my interest rate when I consolidate?
A: So, the interest rate is the average of what you paid on your original loans in each one-eight, rounded up to the nearest one eighth of a percent.
Q: Can I do consolidation of private student loans?
A: The Direct Consolidation Loan program is only available for federal loans.
Q: For how long does the consolidation process take?
A: It takes 30-60 days to complete the process.
Q: Can I reconsolidate my loans?
A: But that’s only if you include new eligible loans.
Conclusion
Federal student aid can be used to loan consolidate your student loans, which will help manage multiple federal student loans. Recognizing the college student loan eligilibility and benefits of loan consolidation allows you to take back your financial future. Make sure you have evaluated your options carefully, and pick a repayment plan that makes sense to you so your long term success is on track.
For more information, visit studentaid.gov or consult with a financial advisor to explore your options.
