A Handy Guide To Student Loan Consolidation

There are several loan schemes for the students in the United States of America. Also, students can go for loans like PLUS loans, Perkins Loans, Stafford Loans etc. A student may need more than one loan at a time. Hence, it would be a tremendous burden on him/her to make so many repayments with such a short span.

A Federal Direct Student Loan program (FDLP) was introduced to help the students to consolidate all the above mentioned loans into one single loan. The most important benefit of this scheme is that the consolidated loan is a fixed interest rate loan. Moreover, due to consolidation, the term of repayment is also extended. The monthly repayment burden is also consequently reduced.

Following are some of the important features of a student’s consolidation loan :

• The student can consolidate several of his loans and can choose a single term of around 15 to 25 years.

• The student enjoys a longer term than the other loans, thereby bringing down the monthly installment paid by him.

•   It must be remembered that though the burden on monthly installment is lowered, the student will end up paying more amount than he would pay for the other types of loans.

• The rate of interest for a consolidated loan is nothing but the weighted average of the interest rates of all the loans that are being consolidated. The weights are assigned to different loans on the basis of quantum of loan. The interest rates are rounded up to the nearest 0.125% and have a maximum limit of 8.25%.

• One of the so-called disadvantages of a student loan consolidation is that the features of the original loans like ‘forgiveness circumstances’ etc are not carried over to the consolidated loan. 

Following types of loans are eligible for consolidation: 

• Loans for Disadvantaged Studends (LDS)

• Federal FEEL and Direct PLUS. This should be in the name of borrower.

• Federal FEEL and Direct Stafford. These are subsidized as well as unsubsidized.

• Federal Perkins.

• Federal Insured Student Loan.

• Supplement Loan for students.

• Health Professional Student Loan.

• Nursing School Loan.

Please remember that both federal loans as well as private loans can be consolidated, but understand that these two types cannot be consolidated together. This means after consolidation of your federal and private loans, you will be liable to two master loans. One is the federal one and other is the private one.