Student Loan Consolidation
Student loans are a great source of financial aid for students who need help paying for their education. Unfortunately, students often leave college with burdensome debt. In addition, they often have multiple loans from different lenders, meaning they are writing more than one loan repayment check each month. One solution to this problem is loan consolidation. Loan consolidation means bundling all your student loans into one single loan... with one lender and one repayment plan. To understand loan consolidation, think of it as the same sort of payment option as refinancing a home mortgage. When you consolidate your student loans, the balances of your existing student loans are paid off and the amount you owe on each of the loans is rolled over into one big consolidated loan. The end result is that you have only one student loan and only one set of payments to make - or deferment forms to complete!
Federal Direct Student Loan Program (FDLP) includes consolidation loans that allow students to consolidate Stafford Loans, PLUS Loans, and Federal Perkins Loans into one single debt. This results in reduced monthly repayments and a longer term for the loan. Unlike the other loans, consolidation loans have a fixed interest rate for the life of the loan.
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, rounded up to the nearest 0.125%, and capped at 8.25%. 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.
