The cost of higher education continues to rise. Many students are unable to afford to finish college. Because of this, Student Loan Consolidation has been made available to students. Student Loan Consolidation is multiple loans combined into one loan. The U.S. Government and the Department of Education has developed Federal Loans to help students pay for their higher education. These loans allow the student to combine their federal loans into one loan. By paying one loan they’re paying one creditor.
Federal student loans are provided by the U.S. Government and the U.S. Department of Education. The Federal Direct Student Loan Program (FDLP) and Federal Family Education Loan Program (FFELP) have been developed to help students and parents consolidate their loans. These two programs allow students to consolidate PLUS Loans, Federal Perkins Loans and Stafford Loans. Students get lower monthly repayments and a longer payment period. These loans usually provide lower interest rates and fees. For these programs, the fixed interest is usually the weighted average of the interest rates of the loans that were consolidated. Congress set the formula for the federal interest rate. Federal programs give graduates longer repayment periods. A student can have a repayment period from 10 to 30 years.
There are two Programs for Federal Loan Consolidation:
o The Federal Family Education Loan Program (FFEL) was a result of the Higher Education Act of 1965. The program is funded by private and public partners. FFEL also makes use of government funds and private companies. The private companies that fund this program receive subsidies from the government.
o The William D. Ford Federal Direct Loan Program (FDLP), commonly known as Direct Loans. With this particular program, instead of the Government or a private company, the U.S. Department of Education acts as the creditor, handling the student’s loans.
Federal Loans have three types:
o The Perkins Loan is a consolidated loan provided by the U.S. Department of Education for college students. It has a fixed interest rate of 5% for a 10 year repayment period. With usual consolidation companies you are required to start repayment after six months of graduation. With the Perkins Loan you have a nine month period after graduation. The loan limits for undergraduates are $5,500 per year with a lifetime maximum loan of $27,500. For graduate students, the limit is $8,000 per year with a lifetime limit of $60,000.
o Stafford Loan offers a lower interest rate but has strict eligibility requirements and limits. There are subsidized and unsubsidized loans. With Subsidized loans the interest is paid by the Federal Government. For Unsubsidized loans, the students pay the interest. Examples of Stafford loan companies are Sallie Mae, JP Morgan Chase, Citibank, Bank of America, and Wachovia Education.
o A PLUS Loan is for parents and graduate students. To be eligible for this loan, the parent or graduate student has to pass the credit check. Usually interest rates are higher. This loan allows the parent to make use of the total cost of the college fees such as tuition, room and board.