Students do not
have things easier that the rest of us, as many would like to claim. They may
not have a job to get up for, a demanding boss, a mortgage to pay and a family
to upkeep, but they do have mounting debts and a small income that simply
cannot keep up. Little wonder then that federal student consolidation loans are
so welcome.
The simple fact is
that, in order to pay for the college education, students have to take out
numerous college loans. Having so many individual loans makes clearing college
debt a real headache, and can be a real struggle. This is where a consolidation
program is of most use, reducing the headache by buying out all of the federal
student loans in one go.
Consolidating
Federal Debt
Just like any other
loan, a federal loan needs to be repaid and as such can place pressure on the
borrower. For students, the fact that three or four such loans can be taken out
over the course of being in college, means that the pressure can become quite
high. For this reason, federal student consolidation loans are necessary.
There is a
difference between private and federal loans, with the terms in particular
making the federal option much more affordable. Usually, because it is the
federal government that is supporting the financial package, the interest rate
is lower than a loan supported by an independent private lender, like a bank.
So, there are differing terms to the consolidation program if clearing college
debt is really going to be advantageous.
Buying out federal
student loans and private student loans with one consolidation loan makes it
hard to address the different issues of loan planning and budgeting. Keeping
them separate in distinctive consolidation programs makes sense.
Consolidation Loan
Options
When it comes to
dealing with several federal college loans at the same time, there is a choice
of government sponsored federal student consolidation loans available. Which
one is the right one is dependent on specific loan terms and the situation that
the student is in. But there are basically two programs under the Higher
Education Act (HEA) to consider.
The first is
program that can be used in constructively clearing college debt is the Direct
Consolidation Loan Program. In this program, the Department of Education issues
consolidation loans to students, allowing them to pay off their existing loans.
The terms of the new loans include a longer loan period, thus ensuring that
repayments are much less each month.
The second option
is the Federal Family Education Loan (FFEL) program. In this program, the
student can also get a loan from the Department of Education, but it is not
restricted to repaying federal student loans. It can also be used to clear
loans taken out to cover living expenses while in college.
However, there are
four other programs to choose from, each offering different advantages
depending on the student situation. Speaking to someone in the financial aid
office can help to identify the best one to choose. These four federal student
consolidation loan programs are: the ICR or income contingent repayment plan;
the extended payment plan; graduated payment plan; and the standard plan.
Flexibility of
Consolidation Programs
The challenge to
clearing college debt is to do so at a rate that is affordable and manageable.
For that reason, the consolidation programs that are provided include
flexibility as a key element. The lifetime of these loans are longer, so that
the principal is divided over greater number of installments.
Coupled with lower
interest rates, and numerous federal student loans reduced to one monthly
repayment, it means the repayment can be as much as 50% of the original monthly
amount.
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