Student Loan Consolidation


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Why Consolidate Your Student Loans?

After graduating from school, it's conceivable that you could have a half dozen or more separate loans, all with different interest rates and payment schedules. A student consolidation loan could be worth it just to simplify your repayment schedules. Also, if you are having difficulty meeting your current loan payments, then by consolidating your student loans, you may be able to bring down the monthly payments to a manageable level. But more importantly, if you can get a loan with a lower interest rate than you are paying on your school loans, then you can save yourself some money. If the consolidation loan extends the length of your student loan payback term, then it may have the added benefit of lowering the monthly payment now (when you aren't making a large salary). You can always make larger payments as your salary grows.

How to Consolidate Your Student Loans

After deciding to consolidate your student loans, the next step is to figure out how to go about it. You may have several choices of lenders, and what you choose could affect the amount you ultimately pay. Choose carefully.

The Department of Education provides the Federal Direct Consolidation Loans Program. Numerous states have student consolidation loans, some for your federal loans and others for your state loans. Then there are private lenders offering consolidation loans as well. You might first check with your current loan providers to see what they have to offer. They may have a better deal for current customers.

Federal Direct Consolidation Loans

Federal Direct Consolidation Loans are run by the US Department of Education and provide a means to combine multiple Federal educational loans into one. The loans that can be consolidated are listed below.

  • Direct Subsidized and Unsubsidized Loans
  • Federal Subsidized and Unsubsidized Federal Stafford Loans
  • Direct PLUS Loans and Federal PLUS Loans *
  • Direct Consolidation Loans and Federal Consolidation Loans
  • Federal Supplemental Loans for Students (SLS)
  • Auxiliary Loans to Assist Students
  • Federal Perkins Loans
  • Health Education Assistance Loans
  • Federal Nursing Loans

*PLUS loans are eligible for in-school consolidation only if the parent borrower also includes other eligible, non-PLUS loans in an in-school period.

The Direct Consolidation Loan Program offers several repayment programs including:

  • Standard Repayment
  • Extended Repayment
  • Graduated Repayment
  • Income-Driven Plan
  • Income-Sensitive Plan (Direct Loans Only)
Standard Repayment is an equal monthly payment spread over up to 10 years. WIth the shortened payment period, this will give you the highest monthly payments and lowest total interest payments.

Extended Repayment will push the payments out over 25 years, so your monthly payments will be much lower. You will need $30,000 in outstanding FFEL Program loans or if you're a Direct Loan borrower, you must have more than $30,000 in outstanding Direct Loans to be eligible for the Extended Repayment plan.

Graduated Repayment begins with a low payment and the payments increase every two years until the loan is paid in no more than ten years. People who are expecting their pay to increase over time may find the Graduated Repayment plan more affordable than the standard plan.

Income-Driven Plan caps the payment size to an affordable size based on income and family size. The payments can be extended to 25 years.

There are four types of Income-Driven Plans

  • REPAYE Plan - Usually 10% of your discretionary income
  • PAYE Plan - Usually 10% of your discretionanry income, but never more the the 10-year standard repayment plan amount
  • IBR Plan - Generally 10% of discretioannry income for new borrowers after Jly 1, 2014 or 15% for borrower from before July 1, 2014, but never more than the 10-year standard repayment plan amount
  • ICR Plan - the lesser of 20% of discretionary income or what you would pay on a 12 year payment plan with a fixed payment.
If you work in public service and make payments under this program for ten years, you may be able to have the remainder of your loan cancelled.

You can apply online for the Federal Direct Program by visiting the Federal Student Aid website

State Student Consolidation Loans

Several states offer consolidation loans as part of their education loan programs. Among these states are Alaska, Arkansas, Colorado, Georgia , Kentucky, Maine, Massachusetts, Mississippi, Missouri, New Hampshire and North Carolina. Check with your state to see if they have a loan consolidation program.

Private Student Consolidation Loans

If you can't qualify for the federal and state student loan consolidation programs because you have private loans, there are many lenders who make private consolidation loans available to students. Check with your own lenders to see if they have a consolidation program. Here are a few private consolidators.

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