Federal Loan Consolidation
Once you’ve graduated from school you have a 6 month grace period before you have to start paying back your loans. If you financed your education through Federal Direct Student Loans each term you were given a new loan. You might also have student loans from your undergraduate education as well; you can take all these loans and combine them into one loan through the Federal Direct Loan Consolidation Program.
At face value this seems like a great option. You can combine all your different loans into one so that you only have to worry about making one payment instead of multiple payments. However, before you consolidate your student loans you should know the downsides to consolidation as well as some of the benefits.
When you consolidate your loans it means you’re starting over with a brand new loan. If you’ve been working for a bit and have been planning on student loan forgiveness, any qualifying payments that have been paid on your previous loans will not count. You’re starting from ground zero and will need 120 qualifying payments on the new consolidated loan.
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In order to be eligible to consolidate your loans through the Federal Direct Consolidation program you must consolidate at least one direct loan and the loans that you consolidate must be in repayment or grace period.
Typically you cannot consolidate another consolidation loan unless you are including other eligible loans in the consolidation; if you consolidated your undergraduate loans, then went to grad school and had more loans you could possibly consolidate them all into one loan.
The interest rate for your new consolidation loan will be calculated by weighted average of the interest rates on the loans that are being consolidated. The new interest rate will be a fixed rate for the life of the consolidation loan.
The nice thing about consolidating your loans through the Federal Direct program is that you can still use the income based repayment plans that other Federal Direct Loans qualify. If you consolidate through a private lender you most likely won’t have the same options and flexibility with repayment plans.
Another benefit of consolidating your loans is that it can help lower the payments. If you were previously on the standard plan with your other loans and are now consolidating your loans, the new loan terms would be for anther ten years on the standard plan. You’re essentially resetting the time clock on your loans. However, this means that you’re paying on the loans for a longer period and overall you’d be paying more.
Before you commit to consolidation make sure that it is the best option for you, once you consolidate there is no going back. Your old loans are all considered paid off and you will just have the consolidation loan.
If you’re tired of having a number of different loans and would like to make it easier by combining them into one loan so you just have to worry about one payment, loan consolidation maybe a good option for you; but make sure you’re not going to be losing out on any benefits that you have with your original loans.
For more information on the Federal Direct Loan Consolidation program check out https://studentaid.ed.gov/sa/repay-loans/consolidation or if you want to apply for a Direct Consolidation loan visit https://studentloans.gov/myDirectLoan/launchConsolidation.action.
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