Consolidation of student loan
Student loans are a great help for the economical weak students, who face difficulty in payment of their educational expenses during their studies. Generally students often have many loans from different lenders, and because of that they are writing more than one loan reimbursement check every month. The solution to this trouble is to consolidation of student loan different loans into one single consolidated loan.
The consolidation program has been in place since 1986 when congress enacted the Federal Consolidation Loan Program to reduce default rates.
Loan consolidation intends to combine all your student loans into a single loan with one lender and one reimbursement plan. When you combine your student loans, the balances of your accessible student loans are paid back, with the entire balance rolling over into one consolidated loan. The result is that you can have only one student loan to pay. However, both students and their parents can consolidate loans.
Now with the consolidation of student loan offer it*s became very convenient for student to apply for the loan for educational purposes. Consolidated loans combine all the different federal loans into one big loan with only one monthly payment. The biggest advantage of a
Consolidation of student loan is that one can take longer to repay ones loan and have can have lower monthly payments.
You can apply for a consolidated loan during your grace period or when you start repayment. The Federal Perkins and Stafford Loans are eligible for the consolidation.
The reason behind the popularity of consolidated loan is that the fixed interest rates, money saving payment incentives, decreased monthly payments, and renewed deferment. You can also save some funds because consolidating all of your student loans will lower your interest rate. A regular student can borrow approximately $10,000 in loans with average interest rate of about 6-8 %. Because of the payment has to made in the long term it give enough time to plan there payment and it means lower monthly payment.
Another good feature of consolidation of student loan is that they are flexible and most suitable for the students who have irregular monthly income.
Advantages of Loan Consolidation:
*You can make a single payment instead of more than one
*It lessens your monthly payment
*Saves thousands of dollars because of Locks in a fixed, generally lower, interest rate for the period of your loan
*Another reason for the consolidation of Loans is that it can lower your monthly payment by extending the term of your loan. This will you to pay down more expensive debt but you should keep in mind that your monthly payment decreases because your loan periods have increased.
You can opt for consolidating your loans if the consolidation loan would have a lesser interest rate than your existing loans, particularly if you are unable to make your monthly payments. It has flexible refund alternatives and no charges, fee, or prepayment punishments besides that no credit checks or cosignatories needed for this type of Loan.
How to get a Consolidated Loan:
You can get Consolidated Student loan straightaway from the U.S. Department of Education or any bank or credit union that partakes in the federal family education loan program. The requisite and loan conditions are same irrespective of where you consolidate your loan. If all of your loans are with the only one lender then you have to consolidate with the same lender. But you have to keep in mind that you can only do so once unless you go back to your school and take out more loans. In this case some lender can provide some reduce rate or discount for timely payment but interest rate will be same for all the loans.
There are two types of lenders offers the consolidated loan while government sets Federal guidance on the program.
* William D. Ford Direct Student Loan Program (Direct)- Which is offered by the US Dept of Education and
* Federal Family Education Loan Program (FFELP)- Which is offered through private lenders
The main difference between the Direct Consolidation and FFELP is that Direct Loan is offered to students when they still in school, while a FFELP must be done after graduation. Your can get the list of Direct Loan offered by schools at:
One of the features that are unique to the FFELP Program is the Single Lender Rule. This states that if a borrower has all his / her federal loans from one FFEL lender then this lender have right of first refusal for consolidation. In this case should contact your current FFELP lender for consolidation.
Another difference between the Direct Loan and FFELP is that the Direct Program is offered by the government (DOE), and
they offer minimal borrower benefits while participants in the FFEL Program offer borrower benefits as a marketing incentive to consolidate. The benefits usually take the form of an interest rate reduction after timely payments or a reduction to the loans principal.
If we think in terms of customer satisfactions and services then Federal Family Education Loan Program is better than the Direct Loan Program. The FFELP call center representatives s are more customers friendly and prompt in response than Direct Government Program.
Eligibility rules For Loan Program:
All FFEL and Direct Stafford Loan borrowers are eligible for the consolidation after they graduate, leave school, or drop below half-time enrollment.
Interest rate:
The interest rate for FFEL and Direct Consolidation Loans is set according to a formula defined by federal statute. The fixed rate is based on the weighted average of the interest rates on the loans at the time you consolidation of Loans, which is rounded up to the nearest one-eighth of a percent. The interest is not more than 8.25 percent. The consolidation rate is fixed for the life of the loan, and protects you from future increases in variable rate loans but prevents you from benefiting from future decreases in variable rates.
Those borrowers who wanted to consolidate only Direct or FFEL Stafford Loans made between July 1, 1998 and June 30, 2006, the 2006-07 Consolidation Loan interest rates for loans that have entered repayment would be 7.14 percent. To consolidate same loans during a deferment or grace period, the rate would be 6.54 percent. But if a borrower consolidated PLUS Loans made between July 1, 1998 and June 30, 2006, the interest rate for the PLUS Consolidation Loan would be 7.94 percent.
Repayment period:
The repayment of Consolidation Loans begins within 60 days of the disbursement of the loan. The payback term ranges from 10 to 30 years, which depends upon the amount of education debt being repaid and the repayment option you have selected.
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