Federal Loan Consolidation

The possibility of federal loan consolidation can bring needed relief to graduates who are dealing with staggering educational debt. Thanks to the Higher Education Act government loans are eligible for consolidation. Funding that was made available for educational purposes through government programs such as the Federal Family Education Loan program, or FFEL, and the Direct Loan program can be consolidated. As with other consolidating loans, borrowers are able to attain a larger amount of government insured funds to pay off previous government educational loans. This approach reduces the monthly payment for the borrower and simplifies the process of paying back educational debt. In some cases, there can also be significant savings for borrowers in the area of interest rates and lending terms. Repayment schedules can change as well. Longer pay back terms can ease the financial strain for graduates at a time when they are building their careers and beginning new lives away from a school environment. The hope behind these federal loan consolidation programs is that the borrower will find it easier to make good on any educational debt that may have accumulated while they were pursuing their degree. The easier repayment terms will hopefully mean that there will be fewer borrowers who find it necessary to default on their educational loans.

After years spent earning a graduate or undergraduate degree, many former students do not have the extra funds to handle the costs of multiple loans. Consolidating this debt may be the only means of financial survival for anyone who is just starting out in life. There are three different types of federal loan consolidation programs, the Stafford loan consolidation, the PLUS loan consolidation, and graduate financing. Refinancing in the Stafford program involves rolling existing Stafford loans into one. This funding is generally offered at a fixed interest rate and can result in significant monthly savings for the student. PLUS loans can only be consolidated if there is a minimum of twenty thousand dollars in debt or more. The third type of federal loan consolidation involves graduate loans. A benefit of this kind of debt consolidation is that it allows the borrower to pull current graduate school debt together with any earlier loans for undergraduate expenses. By bringing all of this debt together under one source of financing, the overall debt becomes much more manageable for the borrower. The Bible talks about the mighty strength of the Lord. "The LORD on high is mightier than the noise of many waters, yea, than the mighty waves of the sea." (Psalm 93:4)

Another type of funding that is specifically geared toward the graduate student is Graduate PLUS financing. Students who have already received federal loan consolidation for previous educational expenses that were accumulated while they were working on an undergraduate degree will still need financing if they choose to work toward a graduate degree. Graduate degree financing that is government insured can be used to pay for any kind of education related expense. Such expenses could include room and board, books and supplies, tuition, travel, lab costs, or any other kind need that is associated with pursuing a graduate degree. These loans generally offer a fixed interest rate. Since making regular payments would be very difficult for anyone who is in school full time and is not holding down a full time job, payments on these loans can be deferred while a student is in school. Another benefit of this type of financing is that there is generally no need for a co signer unless there is a problem with the potential borrower's credit. However, these loans are usually not granted on the basis of financial need. A potential borrower's credit history will come into play before this funding can be approved. In some cases, the funds that are acquired through these loans are paid directly to the school rather than dispersed to the student.

At times, federal loan consolidation may involve financing that was obtained by either a student or the parents of a student. There are financing and consolidating opportunities for both graduates and any parents who have chosen to help fund a child's education. Of course, there are many benefits to consolidating educational debt. The reduction of monthly payments by combining all payments into one is an obvious advantage. Credit ratings can also improve due to the pay off of previous educational debt. Many borrowers can also tailor their federal loan consolidation to their current fiscal situation. Often, this type of financing does not involve stringent credit checks or steep fees for application or origination. For parents who are making payments on a child's educational expenses, there is often no need to wait until a child has graduated to consolidate mounting educational loans.

Many graduates apply for federal loan consolidation once they realize the impact of the multiple educational loans that will kick in after the six month post graduation grace period. Rather than default on this financing and destroy personal credit ratings, consolidating these debts is a much more sensible approach. There are web sites that allow for online application when a borrower chooses to consolidate educational financing. As with any kind of borrowing, a wise consumer will shop around for the best terms and rates. Just because a lender offers government insured financing does not mean that they also offer the best interest rates and options. Any borrower who owes a large amount of debt can often find lending opportunities that extend the amount of pay off time of the consolidated debt. Some plans also allow for payments that begin at a low monthly payment that will rise over time. The thinking behind this approach is that the graduate's earning power will also increase over time and the payment can be adjusted accordingly.

Federal Consolidation Loan Program

A federal consolidation loan program seemed to be the perfect solution for young Mr. Jack Spratt who thought that as soon as the mortarboard was thrown in the air the world would be his oyster. Sadly, there had been few oysters but a lot of mac and cheese for the young man because only entry level positions for a bachelor's degree seemed to be the order of the day. As a result, his three different educational loans plus an apartment and car expenses were choking the financial life out of the young man. Mr. Spratt called the Department of Education hotline number to get as much information as possible. A federal consolidation loan program seemed to be the young man's best hope.

Before calling the Department of Education, the young man had considered getting a bank loan, but credit history had not been established for an approved length of time. A trip to a lending company had proven to be a real education because this genre of lender wanted almost twenty percent to provide an unsecured lending agreement and the student's student loans were presently at less than eight. The lending company offered to stretch the man's payments on this agreement out ten years longer than the loans were now set to pay off, making his payments about a hundred dollars month less than the three totaled now, but the cost would be several thousand more dollars in the end. Spratt decided that if it was a choice between an extra hundred a month or more mac and cheese, the cheesier option won out. The federal consolidation loan program was next on the radar.

In considering the idea of synthesizing three federal loans into one, the counselor asked some pertinent questions. Did Mr. Spratt feel the monthly payments were manageable, did having three different accounts sometimes make paying them more difficult and what were the interest rates on each of the accounts? The answers were no, yes and eight percent, so then the counselor asked the young man how much could be afforded each month and how much was left on each existing account. While there is an online calculator at the Department of Education website to help with the exact federal consolidation loan program figures, the counselor did the figuring for the young bachelor. In addition to seeing how the numbers would fall out, there were some other considerations that needed to be addressed.

First, not just any loan can be eligible for the federal consolidation loan program. Personal loans made by a state or private lender not insured by the federal government cannot be rolled into such a consolidation type of lending agreement. Other lending agreements such as primary care loans, law access loans, medical assist loans and PLATO loans which are educational loans made by the Wells Fargo Bank are also unqualified for federal consolidation loan program. Loans that are available for the consolidation loan programs include direct subsidized and unsubsidized lending agreements, Stafford loans, PLUS loans, Perkins loans, nursing student loans, national defense student loans and many more than must be verified by visiting the Department of Education website. Even these eligible lending agreements must be in one of four states of process: grace, repayment, deferment and default.

A state of grace or forbearance for these federal consolidation loan program lending agreements means that in certain circumstances a student may reduce the monthly payment down to a much smaller amount for a set amount of time. Circumstances such as severe illness, un-employment beyond the maximum deferment period, or a life changing circumstance, which doesn't mean buying a new car! Repayment simply means that the student is making the mandatory payments. The third approved state for consolidation consideration is that loans be in a position of deferment which means that in certain situations only the interest on the loan is being paid. This might be a condition for a medical student or a member of the Armed Forces on active duty. Surprisingly, the final state a lending agreement can exist in to qualify for eligibility in the federal consolidation program is default. This state of a loan occurs when a student just stops paying on the lending agreement altogether.

For those graduates going into teaching, a program better than any federal consolidation loan program is the teacher loan forgiveness program. For certain types of teachers choosing to enter economically challenged areas of the country, the ability to have debts just erased is a very compelling option. There are a number of distinct qualifications for this kind of debt forgiveness, but those meeting the requirements should absolutely explore these great possibilities. For Mr. Spratt, his bachelors was in the powerful craft of basket weaving so there were no possibilities for loan forgiveness. Christians must take their testimony seriously. "Let your light so shine before men that they may be able to see your good works and glorify your Father which is in heaven." (Matthew 5:16)

For a student in school now, it is important to know that handling one's credit privileges at this very moment may affect the ability to get federal consolidation money later. In fact, handling credit poorly while in school may result in having to be saddled with much higher interest lending agreements later. Seek all the help that the Department of Education can offer. There are many options for consolidating loans. Repayments options abound and can be changed at any time. Whatever consolidation plan is chosen, make sure it is one that can be comfortably repaid. The US government has a long arm when it comes to chasing down those who default on student loans.

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