What Do Yon Know About A Federal Direct Consolidation Loan?
Federal direct consolidation loan provides you with a simpler way to repay your student loans. Through consolidation, borrowers may combine various types of federal education loans.
There are three types of direct consolidation loan you may apply for:
- Direct Subsidized Consolidation Loan — combines federal student loans eligible for interest subsidies, such as subsidized FFELP and Direct Loans, and Federal Perkins Loans.
- Direct Unsubsidized Consolidation Loan — combines federal student loans not eligible for interest subsidies. If any one of the loans to be consolidated is unsubsidized, then you will receive an Unsubsidized Direct Consolidation Loan.
- Direct PLUS Consolidation Loan — combines FFELP PLUS and Direct PLUS loans.
Consolidation loans have longer terms than other loans. Debtors can choose terms of 10–30 years. Although the monthly repayments are lower, the total amount paid over the term of the loan is higher than would be paid with other loans. The fixed interest rate is calculated as the weighted average of the interest rates of the loans being consolidated, assigning relative weights according to the amounts borrowed. Some features of the original consolidated loans, such as post graduation grace periods and special forgiveness circumstances, are not carried over into the consolidation loan, and consolidation loans are not universally suitable for all debtors.
One of the key benefits of direct loan consolidation is payment relief. If you have borrowed more than one loan, you will simplify the repayment process with a Direct Consolidation Loan. Instead of making monthly payments for each loan separately, you will have to make only one payment every month. This single payment is likely to be a lower amount than the combination of minimum payments required for each separate loan.
The new interest rate on your Direct Consolidation Loan may also be lower than what you are currently paying on one or more of your loans.
You may include a defaulted student loan as part of a Direct Consolidation Loan if you have made satisfactory repayment arrangements for three months before consolidation or if you otherwise agree to repay your loan under the Income Contingent Repayment Plan. Incidentally, this is a way of removing your loan from default and restoring your eligibility for other types of federal financial aid.
You may not include as part of a Direct Consolidation Loan any educational loan upon which there is a judgment or garnishment unless the judgment is vacated.
There are service centers that can help you. The only thing that you need is to contact and surely you will find out everything you are interested in, one of such centers is the Federal Direct Servicing Center. Their address: Post Office Box 4640 Utica, New York 3504-4640, tel: 1-800-557-7392.
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