Consolidating Your Government Student Loans

Are your student loans getting the best of you? What exactly will a consolidation loan do for you? Under the Federal Family Education Loan (FFEL) Program, banks, credit unions, secondary markets, and other lenders provide the consolidation loans. And under the William D. Ford Federal Direct Loan (Direct Loan) Program, the federal government provides the loans. A consolidation loan allows you to combine your federal student loans into a single loan with one monthly payment. This lower payment can be significantly lower than the payment required under the standard 10-year repayment option.

Although private education loans are not eligible, most federal education loans are eligible for consolidation, including subsidized and unsubsidized Direct and FFEL Stafford Loans, SLS, Federal Perkins Loans, Federal Nursing Loans, and Health Education Assistance Loans. In addition, parent borrowers (PLUS Loan borrowers) can consolidate their loans.

When applying for a Direct Loan Consolidation or an FFEL Consolidation, the borrowers must contact the lender and complete an application. In the majority of cases, lenders will provide borrowers with the ability to request an application over the telephone or online. After completing and submitting the loan application, the lenders will then request information from the borrower’s other lenders or from its own system to determine the amounts outstanding on the borrower’s loans. When that process is completed to the lender’s satisfaction, the borrower will receive notification. This notification will include the normal consumer disclosures, along with the amount owed, and where to make payments, if appropriate.

Always Consider The Cost

One of the most important things to consider in applying for a consolidation loan is the cost, keeping in mind that even though it may simplify and even lower your monthly loan repayment, it can also increase the total cost of repaying the loans. Since a consolidation loan offers lower monthly payments by giving borrowers up to 30 years to repay their loans, they’ll be paying more payments and more interest and it could even double the total interest expense in some cases. So before signing up for a consolidation loan, make sure you really need monthly payment relief by comparing the cost of repaying your unconsolidated loans against the cost or repaying a consolidation loan. Don’t forget about your borrower benefits. Borrower benefits that are offered by non-consolidated repayment plans can significantly reduce the cost of repaying your loans through interest rate discounts, loan cancellation benefits, or principal rebates.