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Each year, college loans make it possible for hundreds of thousands of students to finance their post-secondary education. By far the most popular, and affordable, student loans are offered by the Federal government through both the William D. Ford Federal Direct Loan Program, and the Federal Perkins Loan Program. Under these programs, the United States Department of Education acts as the lender for qualified college students looking to finance their education.
The Federal government offers a variety of low interest loans specifically designed to meet the needs of college students struggling to meet the rising costs of a post-secondary education. Their loan programs currently include the Federal Perkins Loan, Federal Direct Subsidized and Unsubsidized Loans for undergraduate students, and Federal Direct PLUS Loans for graduate and professional degree seeking students. These loans form the backbone of the Federal government’s initiative to make college more accessible to students across the country.
While Federally supported loans are the most affordable and student friendly loans on the market, any amount of borrowing can create a financial burden for college students who have yet to reach their full earning potential. The U.S. Department of Education understands the difficulties many students face when it comes time to repay their outstanding college loans, and as the primary lender for all federal student loan programs offers the Federal Direct Consolidation Loan for qualified students with two or more outstanding federal education loans. A Direct Consolidation Loan allows students to combine two or more outstanding federal loans into a single, more manageable, loan package. Through this program, students can replace their multiple monthly expenditures with a single lower monthly payment.
The majority of Federal student loans are eligible for consolidation under the Federal Direct Loan Consolidation Program. Eligible loans include:
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- Direct PLUS Loans for Graduate and Professional Degree Seeking Students
- Federal Supplemental Loans
- Federal Perkins Loans
- Federal Nursing Loans
Federal PLUS Loans for Parents are not eligible for consolidation, as they are the sole responsibility of the parent or guardian who secured the loan. Private lender loans, or alternative loans, are also not eligible for the Federal Direct Loan Consolidation Program.
Students are only considered eligible for Federal loan consolidation after they have graduated, left school, or dropped below half-time enrollment. To qualify for a consolidated loan, students must have at least one Federal loan in grace period or in repayment. Students who have defaulted on a loan must make satisfactory arrangements with their current loan servicer concerning repayment , and must agree to repay their new Direct Consolidation Loan under the Income Contingent Repayment Plan.
The Direct Consolidation Loan Program Terms
Like all Federal student loans, the Direct Consolidation Loan offers extremely attractive terms for qualified borrowers. These terms include:
- No credit check
- No extra fees associated with the loan
- No penalties for early repayment
- No minimum loan amount
- Low fixed interest rate, which will be based on the weighted average of the interest rates of the loans being consolidated. Interest rates may not exceed 8.25%.
- Flexible repayment plans
Is Loan Consolidation Right for You?
Loan consolidation can be of benefit to a great number of students, but it is not for everyone. Before applying for a consolidated loan, students should review the following check list:
- Review all current Federal student loans
- Calculate current monthly payment amounts
- Determine monthly payments following consolidation using the Direct Loan Consolidation online calculator
- Compare current monthly payments with the new monthly payment following consolidation
Deciding to Consolidate
Loan consolidation is not for everyone, and students should carefully consider whether or not it is the right option for them. While loan consolidation can greatly reduce a student’s monthly payments, it also greatly extends the life of the student’s loans. This will result in an increase in the overall cost of a student’s outstanding education loans. Before pursuing a consolidation loan, students should carefully weigh the pros and cons, and consider the financial impact it will have on their future, as well as their present. If, after due consideration, students decide to consolidate their outstanding Federal loans they may apply online for a Direct Consolidation Loan.
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