Federal Student Loan Consolidation offers many benefits to those who need help making the payments to their existing federal student loans. When you consolidate, you combine all of your existing loans into one loan usually at a lower interest rate and an extended period. Federal student loan interest rates are currently at their lowest and by consolidating you can get a fixed interest rate which is locked in for the duration of your loan.
What are some things to think about when consolidating?
The extended payment feature can be beneficial as we indicated earlier, but only if you use it wisely. If you can afford it, it is recommended that you allocate at least one-third more of the monthly payment in order to not incur more interest fees over the life of your loan. Again, only put more towards the monthly payment if you can afford it. You won’t incur any penalties in prepayment should you continue to put more towards your monthly payment than the minimum.
If you are in a situation where you are struggling to make the payments and have defaulted on your current federal loans, there is an option that may help you. If your are wondering what “defaulted” means, it means that you failed to make payments on your loan for either (a) 180 days if you repay in monthly installments or (b) 240 days if the payments are due less frequently. In this scenario, a FFEL consolidation loan may be the answer. Through a FFEL loan you consolidate several loans with various repayment schedules into one loan, similar to a consolidation loan. However, the repayments are set up based upon your income level. In order to qualify for a FFEL consolidation loan, you must currently be in repayment on the loan you defaulted or you have been able to make at least three voluntary and on time monthly payments in full.
One other point to consider is that many times graduates try to consolidate all their federal and private student loans into one. It’s recommended that you keep them separate as this can cause you to lose some of your federal loan benefits. One example is if you combine both private and federal loans you can lose out on the interest tax deduction benefit you get with your federal student loans. You’ll need to be careful as there are many benefits to keeping these loans separate, especially when consolidating.
So now that we’ve identified the points to consider, the following is a basic list of some student loans that are eligible to be consolidated: PERK – Federal Perkins Loans, formerly Nations Defense/National Direct Student Loans (NDSL), PLUS – Federal PLUS (Parent) Loans, SCON – Subsidized Federal Consolidation Loans, UCON- Unsubsidized Federal Consolidation Loans, SLS – Federal Supplemental Loans for Students (formerly Auxiliary Loans to Assist Students (ALAS) and Student PLUS Loans), SS – Subsidized Federal Stafford Loans & Guaranteed Student Loans (GSL), DSS – Direct Subsidized Stafford Loans, DUS – Direct Unsubsidized Stafford Loans, DPLUS – Direct PLUS Loans, DUCON – Direct Unsubsidized Consolidation Loan, including Direct PLUS Consolidation Loans.
Federal student loan consolidation is a worthwhile option and can help to lift your student loan burdens. Research lenders and with interest rates still low, you can lock in a low rate and take advantage of the lower monthly payments.