Know Your Benefits While Applying For A Federal Loan Consolidation
There are many options and methods to manage your student loan repayment and a Federal Loan Consolidation is one of them.
The Federal Loan Consolidation Program was designed to simplify loan repayment for borrowers by combining several types of federal education loans into one new loan with a fixed interest rate. Federal educational loans include Stafford, Graduate PLUS and Perkins loans. Federal loan consolidation can only occur after graduation or separation from the school.
The interest rate may be lower than on one or more of the underlying loans. In addition, the monthly payment amount on a consolidation loan is usually lower and the amount of time to repay may be extended beyond what was available in the separate loan programs. These features could result in more manageable debt and should make borrowers less prone to default.
The terms of a Federal Consolidation Loan:
- The interest rate on a Federal Consolidation Loan is fixed, meaning it will not change over the life of the loan, even if the interest rates on other federal loans go up (or down).
- The interest rate is calculated from the weighted average of the interest rates of your
existing loans, rounded up to the nearest 0.125%, with a cap of 8.25% - There are no fees to apply for or receive such loans
- The repayment term is up to 30 years, depending on the total amount of your student loan debt, and there is no pre-payment penalty.
With such loans, you can benefit from:
- Lower monthly payments
- Fixed interest rates
- Only one payment for your federal loans each month
- New or renewed deferments
Because you are allowed up to 30 years to repay your loan, your monthly payment can be significantly lower with a consolidation loan, although you may pay more in total interest over the life of your loan.
There are no deadlines. Only loans that are in grace, deferment, forbearance, or repayment can be consolidated into a Federal Consolidation Loan. Federal Stafford Loans that are in the grace period or in deferment may have the lower in-school interest rate, compared to loans that are in repayment or forbearance. This will depend on whether your loans have a fixed or variable interest rate structure.
If all of your education loans are with one lender, you may wish to refer to that lender when considering a consolidation loan. You may also contact the U.S. Department of Education (Federal Direct Loan Program) at: www.loanconsolidation.ed.gov or (800) 557-7392.
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