By: Mevish JafferFederal student loan consolidation can be an excellent option for students trying to start out on the best financial foot after graduating. Federal student loan consolidation is available under the Federal Family Education Loan (FFEL) program. Federal student loan consolidation is actually designed to assist individuals with high monthly federal student financial aid payments. With federal student loan consolidation, student loan consolidation can be done in part or in full. That is, a student can use the federal student loan consolidation program to combine all or some of their outstanding federal student financial aid. This can be done even if your loans are currently held by a variety of lenders and are different types of loans. The goal of federal student loan consolidation is to create one new loan with a single monthly payment.
Federal student loan consolidation can occur when federal student loans are obtained. There is a considerable difference between federal student loans and private student loans. There are several varieties of student loans that exist within the Federal and Private sectors. Federally sponsored student loans include Perkins Loans, Stafford Loans and PLUS Loans. The Perkins loan is offered to students demonstrating financial need and offers a fixed 5% interest rate and nine-month grace period, as opposed to the more common six-month grace period. Additionally, the Perkins loan is a subsidized student loan, which means that interest does not begin to accrue until the borrower begins to repay the loan. The Stafford loan can also be federally sponsored, but differs from the Perkins loan as it can also be obtained from a private lender and may be either subsidized or unsubsidized. PLUS loans differ from both of these varieties of student loans. A PLUS loan is made to the parent directly, though recently these loans have also been made available to graduate students. These student loan amounts are often much higher, however, the parent or borrower is responsible for beginning repayment immediately. Additionally, the interest rate on these student loans was raised to 8.5% as of July 1, 2006. By contrast, private student loans are generally obtained from a separate student loan company and their interest rates are often higher than government loan rates and allow for larger sums to be borrowed. The interest rates are usually based on one or multiple financial factors such as the current Prime rate and The Wall Street Journal. In addition, a student cannot plan on federal student loan consolidation with a private student loan.
Some students may wonder when the best time for student loan debt consolidation would be. Federal student loan consolidation does not have a specific deadline, however, there are many things that need to be considered when making the decision to move forward with student loan debt consolidation. To be eligible for federal student loan consolidation under the FFEL program, the borrower needs to at least be in the grace period for their federal student financial aid or in the repayment period on all loans selected for consolidation. Repayment also includes loans that are in forbearance or deferment. As soon as the grace period or period of approved deferment has ended, the higher interest rate is used to calculate the final weighted average fixed rate. As a result, the fixed interest rate for federal student loan consolidation will be higher if consolidation is done after the grace period or period of approved deferment expires.
There are many types of federal student financial aid eligible for student loan debt consolidation. They include any federally sponsored student loan. Loans not eligible for federal student loan consolidation include private loans, school-based loans and, of course, loans provided a student’s family. When choosing a federal student loan consolidation company, there are some factors to consider, these include where your federal student financial aid came from. If all of your federal student loans came from one lender originally, then that lender should be contacted regarding their federal student loan consolidation services. If loans have been acquired through several lenders, the student should contact at least one of their current lenders to find out if they offer federal student loan consolidation. There are some lenders that will offer repayment incentives for student loan debt consolidation. These incentives can sometimes include benefits for a longstanding history of on-time monthly repayments and immediate interest discounts for automatically scheduled debit payments.
