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Federal Consolidation Loans

federal direct consolidation loan

Keep Payments Low with Federal Student Loan Consolidation

Federal loan consolidation can help borrowers combine more than one federal loan to lower their monthly payments. This can be beneficial for many borrowers - especially if they want to spread their payments out for longer than the standard 10 years offered on federal loans. Student Finance Domain will show you how.

Federal loan consolidation for student loans such as the Perkins Loans, unsubsidized Stafford Loans, and subsidized Stafford Loans is an easy way to gain better control of your finances. Federal consolidation loans are also available for your parents' PLUS Loans. These loans allow you to combine your federal student debt with one loan product. You can do this either through a FFEL (Federal Family Education Loan) consolidation loan at a private lender or through the U.S. Department of Education's federal direct consolidation loan.

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The government mandates an interest calculation method for all federal loan consolidation products offered by private lenders. It's based on the weighted average of the interest rates of all your federal loans. That number is then rounded up to the nearest eighth of one percent for a final interest rate that can never be higher than 8.25%. Although the government mandates the upper limit, there's nothing preventing a lender from offering a lower rate. So shopping around could benefit you greatly.

Using a private lender for your federal student loan consolidation needs offers many other benefits. In addition to combining multiple loans into one for one lower monthly payment, private lenders may offer the following types of benefits for federal student loan consolidation:

  • No application or origination fees. In fact you should never be paying a fee for a federal consolidation loan. So don't!
  • Fixed interest rates that never exceed 8.25%
  • Flexible repayment plans
  • No cosigner necessary
  • Online account access and management
  • No pre-payment penalties
  • Up to 30-year repayment plans based on the balance of your loans

Federal student loan consolidation through private lenders can offer many repayment options. Common repayment terms include:

  • Standard repayment terms - This is the standard 10-year loan. Your monthly payments will be the same throughout the term of the loan. Note that the minimum monthly payments may apply
  • Extended repayment terms - Flexible payment option that allows borrowers to decrease their monthly payments by extending the life of the loan up to a maximum of 30 years
  • Graduated repayment terms - Allow for loan payments that start low and gradually increase over time, as your earning power increases
  • Income-based repayment terms - Take the borrower's income to debt ratio into consideration each year to determine how much his loan payment should be. Payments will be calculated as a percentage of the borrower's total income

If you have any direct federal loans you might be eligible for a federal direct consolidation loan. These loans have basically the same benefits and limitations as a private lender loan for federal loans, but the lender is the U.S. Department of Education. These loans have no minimum or maximum amounts and go through the Loan Origination Center's Consolidation Program (www.loanconsolidation.ed.gov). If you get a federal direct consolidation loan your interest rate will always be dictated by the weighted average formula explained above, while private lenders can offer lower rates. Additionally borrowers who enter public service as a profession may be eligible for Income Contingent Repayment (ICR), which allows borrowers to make loan payments that are determined by a number of factors including their income and debt. After 25 years of ICR payments the federal government will forgive the balance of the loan.

Federal loan consolidation can be a huge help to you if loan payments are hard to manage. These consolidation loans offer options to extend the life of the loan thus leaving you with a more manageable monthly payment. Many times you can also secure a lower finance rate if you look hard enough. For information about private student loan or alternative student loan consolidation in addition to federal loan consolidation see the private consolidation loan section.

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