Tips for Student Loan Consolidation

Federal student loan consolidation is a re-financing program that allows you to combine all of your existing federal student loans into one new single loan. There are no application fees, credit checks, or cosigners required for a student loan consolidation. Benefits of consolidation include:

• Lower monthly payments. Student loan consolidation provides a longer repayment term, which in turn lowers your monthly payment. This will free-up more money to use for other expenses such as rent or mortgage payments, food and car expenses, utility expenses, and credit card payments. Depending on your total balance, you could reduce your monthly payments up to 53%. Because there are no penalties for early or extra repayment, you can make larger payments when it becomes affordable to.
• Lock in a low fixed interest rate. Currently, unconsolidated federal student loans have a variable interest rate which changes each year on July 1st based on the Treasury bill. By consolidating your student loans, you can lock in a fixed interest rate for the life of your loan.
• Customize a payment plan. By consolidating your student loans, you'll have the opportunity to choose a payment plan that best fits your current income level. Plans such as the Graduated Repayment Plan start out for the first several years as a lower interest only payment, and then increase to a level repayment plan. This plan is helpful for those who need payment relief right out of school, while they look for a job and get established.
• One payment per month. By consolidating, you eliminate the need to make multiple monthly payments to each of your federal lenders. With all of your loans combined, you will only need to write one check each month.
• Maintain your deferment and interest subsidy benefits. Because federal student loan consolidation is simply a new federal loan, you will not lose your loan deferment and forbearance benefits. Additionally, you will maintain your interest subsidy benefits on any subsidized FFELP or subsidized Direct loans that you consolidate.
• Help your credit. Consolidation takes all of your existing federal student loans, pays them off in full, and combines them into one new loan. Instead of having multiple open loans with limited payment history, you will have just one loan. Your older student loans will be listed as paid in full. In a nutshell, consolidation helps eliminate open lines of credit.

When should you consolidate?

You can consolidate during your grace period or during loan repayment. Your grace period is a six month no-payment window after you graduate or drop below half-time enrollment, before your loans go into repayment. Additionally, apply before July 1st - interest rates are expected to increase, so take advantage of this year's lower rates.Click here for more Frequently Asked Questions

Eligible Federal Loans

Here is a list of federal loans that are eligible for federal student loan consolidation:

• Stafford Loans
• Perkins Loans
• Federal Direct Loans
• Federal Parent Loans for Undergraduate Students (PLUS)
• Federal Grad PLUS Loans
• Federal Supplemental Loans for Students (SLS)
• Federally Insured Student Loans (FISL)
• National Direct Student Loans (NDSL)
• Loans for Disadvantaged Students (LDS)
• Auxiliary Loan to Assist Students (ALAS)
• Health Education Assistance Loan (HEAL)

About the Author

Christopher S. Penn is the producer and creator of the Financial Aid Podcast, a daily free Internet radio show about making college affordable, as well as Chief Technology Officer of the Student Loan Network. His work has been featured in several books, newspapers, and conferences.

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