Best Option For Students: Federal Consolidation
Apart from the private
financial institutions, there is another type of loan consolidation
program that debtors with multiple loans can opt for, and this is
offered by the U.S. federal government.
The federal consolidation loans that are the easiest
to obtain are those loan programs for students, which makes a lot
of sense. After all, students and recently graduated students are
the ones that need a lot of help when it comes to finances. With
little or no source of income, they actually have to pay the whole
gamut of student loans, medical bills and credit card debts.
The U.S. Department of Education thankfully has loan programs in
place that consolidate all federal education loans and allows students
to pay for these loans through a single monthly payment.
If you have a multiple student loans, you should
know that you actually have the right to consolidate your loans
under the Higher Education Act, which created the federal consolidation
loans under the Direct Loan Program and the Federal Family Education
Loan (FFEL) Programs.
Of course, under the federal consolidation loan
programs, only the federal loans can qualify for consolidation.
To obtain a Direct Consolidation loan, you must already have at
least one federal loan under the Direct Loan or FFEL program. The
loan or loans, in addition, must be in any of these statuses: "grace
period", "in deferment" or "in default".
The US Department of Education's Federal Student
Aid can give out more details to help you in your consolidation
efforts. Aside from FFEL loans, there is also another type of loan
- the CBSL loans. Between the FFEL loans and CBSL loans, there are
different loan programs, including: Federal Direct Loans, Federal
Parent Loans (PLUS), Federal Direct Grad PLUS Loans, Federal Grad
PLUS Loans, Federal Subsidized and Unsubsidized Stafford Loans,
Supplemental Loans for Students (SLS). There are also Federally
Insured Student Loans, Federal Perkins Loans, Health Professions
Student Loans, and Federal Nursing Loans.
FFEL loans and CSBL loans cannot be co-mingled,
and you need to consolidate the different types of loans under FFEL-type
or CSBL-type of consolidation loans. In any case, federal consolidation
loans can greatly reduce you monthly payments into one, and reduce
the payment amount up to 40%. Term payments too can be extended
up to 30 years.
There are private student loans and federal student
loans. If you have a mix of both, it would be wise to prioritize
the federal loans. This is because loans that were granted by the
United States Department of Education can have lingering effects
on your finances, even beyond your graduation. The federal government
can require your employers to deduct 15% of your gross salary to
pay for a defaulted loan or loans. Your tax refunds can also go
to the payment of your debt.
Having several federal loans at once need not
stress you out. The federal government has actually provided for
a solution to this stressful situation through its federal consolidation
loans. Keep in mind though, that federal consolidation loans are
still debts that need to be paid.