Student Debt Consolidation Resource

For many college graduates, student debt is an unfortunate byproduct of receiving an education. To pay for an education it is often necessary to take out loans from several lenders. As a result, a person is often paying two or more loans following graduation. This can complicate repayment and make it difficult for borrowers to manage their debt. Student debt consolidation involves combining private or certain eligible Federal loans into one manageable payment.

What is Consolidation?

In general, debt consolidation involves taking out a single loan to pay for two or more loans. The borrower then has a single payment versus several payments. When it comes to certain federal student loans, there is the federal consolidation loan program. This allows borrowers to combine several federal student loans into a single loan at a fixed interest rate. These loan consolidation programs may fall under the Federal Direct Student Loan Program (FDLP) or the Federal Family Education Loan Program (FFELP).

Why It’s Necessary

Reducing and eventually eliminating debt is a crucial part of being financially fit. Excessive debt topped with high interest rates can overwhelm a person’s ability to pay back loans. As a result, there is an increased risk of missing or making late payments. This has a negative impact on an individual’s credit score. Low credit scores can result in a number of difficulties when it comes to buying a home or a car, or even obtaining employment. While debt consolidation isn’t the only option for reducing student debt, its potential benefits make it worth consideration.

Pros and Cons of Consolidation

The obvious benefit of consolidating student debt is the consistency of paying a single bill. Another benefit of debt consolidation is that it will often result in a lower interest rate than the original loans. When it comes to Federal consolidated loans, interest rates are fixed. When consolidated, the repayment terms of the loan can be extended up to 30 years with lower monthly payments. Although interest rates are fixed for the term of the loan, the extended repayment terms result in higher interest paid over the life of the loan.

Federal Consolidation Eligibility

Only certain loans are eligible for Federal Consolidation loans. These include Subsidized and Unsubsidized Federal Stafford and Federal Direct Stafford Loans, as well as Federal Plus, Federal Direct Plus Loans and Federal Perkins Loans. Private loans are not eligible for Federal consolidation loan programs. People who wish to consolidate these types of loans will need to obtain a loan from a private lender. While some may be unsecured, it is often the case that consolidated loans must be secured against an asset, which may be done by putting a mortgage on a house for example.

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