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).
- Federal Student Aid: Traditional Direct Consolidation Loans: A website from the United States Department of Education that discusses what direct consolidation loans are.
- University of Maryland: Consolidation: This site reviews what student loan consolidation is, who can and cannot do it, and why it should be done.
- University of Washington: Financial Aid: Basic answers for questions regarding debt consolidation and its benefits.
- Wakeforest University: Student Loan Consolidation: An overview of student loan consolidation, including which loans are eligible, risks and benefits.
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.
- Fresno State: EdFund (PDF) – Managing Your Student Portfolio: A detailed PDF for students regarding managing their student loan portfolio. This includes numerous options, worksheets and advice regarding paperwork.
- Temple University: Debt Consolidation: This website answers questions regarding debt consolidation and provides advice on choosing the right consolidation agency.
- Miami University: Loan Consolidation FAQS: A page that addresses frequently asked questions regarding debt consolidation. The page addresses Federal Direct Student Loans, Federal Perkins Loans and Federal PLUS Loans.
- Quinnipiac University School of Law: Loan Consolidation Information: Defines student loan consolidation and explains why and when students should consider it.
- Plymouth State University: Financial Aid: Discusses all options regarding the repayment of student loans. This includes consolidation and facts that should be taken into consideration when contemplating consolidation.
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.
- University of Wisconsin Milwaukee: Student Loan Consolidation: Reviews frequently asked questions regarding debt consolidation and advises on factors that should be reviewed when considering consolidation as an option.
- Forbes: Tips on Consolidating Student Loans: Discusses student loan debt and provides consolidation tips.
- Missouri Department of Higher Education: Loan Consolidation: This website discusses loan consolidation, eligibility requirements, interest rates and repayment period. It includes a consolidation calculator.
- Nine Steps to Scale Back Student Loan Payments: News report on managing student loan debt, including consolidation.
- FOX Business: Is Student Loan Consolidation Right For You?: Discusses the pros and cons of college graduates consolidating their debt.
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.
- Rogue Community College: Loan Consolidation: A general overview of debt consolidation, including current law and making the decision to consolidate student debt.
- Cal Poly: Considering Loan Consolidation?: This website gives students basic information necessary to make a decision on debt consolidation.
- Direct Consolidation Loans Information Center: Answers to frequently asked questions regarding student loan debt consolidation.
- Columbia College: Loan Consolidation: A brief outline of the advantages of debt consolidation.