Government Student Loan Consolidation

Do you find that you are paying out more each month for various student loans than you can comfortably afford? Sometimes, bills can become overwhelming, and you need help in order to avoid default. In the case where you have used up all your deferment options, its time to think about a government student loan consolidation. 

How about the situation where you have to pay several different student loan lenders at different times of the month? That could drive you crazy! Don’t crack up; instead apply for a government student loan consolidation.

With a government student loan consolidation, you have only one check to write each month – to the Department of Education. The first step is to use the Department’s online calculator to figure out what your monthly payments are going to be under the various plans available. 

Another reason to use a government student loan consolidation is to change from variable interest rate loans to a single fixed rate loan. The interest rate is calculated by averaging the loans being consolidated, but will not exceed eight and a quarter percent. The online calculator will figure this out for you as well.

Bear in mind that extending your loan via consolidation, while lowering your monthly payments, will increase the total size of the loan when interest is figured in. As long as a long-term increase doesn’t outweigh the current benefits of lower monthly payments, you are good to go.

Always look at how many payments are left before you decide to consolidate – if you have a relatively few payments to go, it might be best to avoid consolidation and just finish off your regular payments.

Besides the obvious benefit of having just one payment and one lender to deal with, another benefit of government student loan consolidation is that there are multiple repayment plans from which to choose. Two popular options are the Income Contingent Repayment Plan and the Income-Base Repayment Plan. Both plans are flexible and can change as your lifestyle changes. Best of all, borrowers can switch repayment plans whenever they choose.

Another nice feature of government student loan consolidation is that there is no maximum amount of refinancing and there are no fees. That’s right, consolidation is free!

Not only will you benefit from reduced monthly payments, you may qualify for a new deferment as well. This is especially useful for students who have already exhausted all their other deferment options.

No doubt about it, government student loan consolidation is a good thing!

Eric Bank, Freelance Writer

© 2011 Hedge Fund Writer LLC

Federal Student Loans Are Easy

The Health Education Reconciliation Act of 2010 mandated that all federal student loans originate from the Department of Education. Before this act, banks and financial institutions acted as middlemen and charged fees for loans that were guaranteed by the U.S. government. The 2010 act saved over $6 billion by removing the banks from the process. This has also eliminated much confusion and discontent that used to be voiced by students who felt they were being ripped-off by the banks. 

One of the attractive features of the federal program is the provision for student loan repayment. As long as a student is enrolled at least half-time at a college or university, the student loan repayment is deferred. The loan repayment starts from six months to a year after a student ends study. This is an excellent benefit that encourages students to continue their education and take master’s and doctorate programs. Also, a student can change their concentration of study without jeopardizing the deferment, so students can serially study as many subjects as they like.

Another nice feature regarding student loan repayment is the new cap on payments. Currently, students do not have to pay more than 15 percent of their monthly discretionary income towards student loan repayment. In 2014, this cap drops to ten percent, a 33% decrease. This will be welcome news to upcoming students, as it means more money to live on without undue hardship because of student loan repayment.

Some students think that federal loans can be used only for tuition. However, other covered expenses include fees, transportation, supplies, room and board.

The interest rates on federal student loans are low, usually a couple of percentage points lower than bank loans. Terms are so good that the Department of Education recommends that students first max out their federal loan potential before even thinking about a private loan, which will no doubt cost more and have less favorable terms.

You apply for a federal student loan through the online Free Application For Student Aid (FAFSA) process. This is a streamlined web form that allows you to list all the schools that interest you. After you apply using FAFSA, the Department of Education will notify each school on your list that you are potentially interested in attending. The schools then contact you and let you know the range of financial options available to you, including grants, scholarships, jobs and loans. 

When you decide on the school you will attend, the government will forward your loan proceeds to you via the school. No banks or other financial institutions are involved.

Eric Bank, Freelance Writer

© 2011 Hedge Fund Writer LLC