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Consolidating Your Government Student Loans
By: Dale Ronewicz
A Consolidation Loan allows you to combine your federal student loans into a
single loan with one monthly payment, which can be significantly lower than the
payment required under the standard 10-year repayment option. Under the Federal
Family Education Loan (FFEL) Program, banks, secondary markets, credit unions,
and other lenders provide the Consolidation Loans. Under the William D. Ford
Federal Direct Loan (Direct Loan) Program, the federal government provides the
loans.
Most federal education loans are eligible for consolidation, including
subsidized and unsubsidized Direct and FFEL Stafford Loans, SLS, Federal Perkins
Loans, Federal Nursing Loans, and Health Education Assistance Loans. Private
education loans are not eligible. PLUS Loan borrowers (parent borrowers) also
can consolidate their loans.
To apply for a Direct Loan Consolidation or an FFEL Consolidation the borrower
must contact the lender and complete an application. Most lenders provide
borrowers with the ability to apply on-line or request an application over the
telephone. Once an application is completed and submitted, the lender will
request information from the borrower’s other lenders or from its own system to
determine the amounts outstanding on the borrowers loans. The borrower will then
receive notification about the consolidation loan, normal consumer disclosures,
the amount owed, and if appropriate, where to make payments.
Always Consider the Cost
You should keep in mind that although consolidation can simplify loan repayment
and lower your monthly payment, it also can significantly increase the total
cost of repaying your loans. Consolidation offers lower monthly payments by
giving borrowers up to 30 years to repay their loans. So, you'll make more
payments and pay more in interest. In fact, in some situations consolidation can
double your total interest expense. If you don't need monthly payment relief,
you should compare the cost of repaying your unconsolidated loans against the
cost of repaying a consolidation loan. You also should take into account the
impact of losing any borrower benefits offered under non-consolidated repayment
plans. Borrower benefits, which may include interest rate discounts, principal
rebates, or some loan cancellation benefits can significantly reduce the cost of
repaying your loans.
About the Author:
For Part II of this article The Pros and Cons of Government Student Loan
Consolidation please visit: http://www.american-lenders.org/goverment_student_loan_consolidation
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