Information on Federal Consolidation Choices
Interest Rates May Rise as We Speak, Find the Borrower Perks Instead
Federal student loans are ubiquitous among college students. Almost everybody must apply for them in order to be eligible for other funding. You know, before you may apply for private loans, even some college scholarships, you must have already applied for your federal loans.
Student loan debt is no big secret; in fact it’s one of the most bandied about topics in education today. Even for grads with federal loans to repay, and most have private loans to boot, the federal loans can get heady. Federal student loan consolidation plans are everywhere and offered by almost every student loan lender as well as through the Federal government’s Direct Loan Program. But it seems you cannot act quickly enough. Since July 2006 federal interest rates have crept upwards. If you spend too much time just thinking about consolidating, say some financial advisors, you may miss out on very lucrative incentives.
Uncle Sam Sets the Rates and Rules
The United States Department of Education is the governing body for the Federal Family Education Loan Program (FFELP). There is a specific equation by which federal consolidation interest rates are determined, that includes a “weighted average interest rate.” A few other “rules” you should know include:
- Federal consolidation loan interest rates are fixed across the board.
- Subsidized and unsubsidized Stafford, Perkins Loans, Nursing Loans and Health Education Assistance loans may be consolidated only after graduation.
- PLUS Loans may be consolidated once “fully disbursed.”
Also since July 2006 a few federal consolidation loan benefits have been disqualified:
- Married borrowers may no longer combine their loans for consolidation.
- Students who are in school no longer qualify for loan consolidation; they must be graduated to consolidate federal loans.
Federal Consolidation Loan Programs through the Government
Direct federal loans may be consolidated through the federal government. Eligible loans include Direct Subsidized and Unsubsidized Student Loans, Supplemental Loans, and Loans for Disadvantaged Students, among a slew of others.
Private Lenders Distinguished by Borrower Perks
If the federal government sets the interest rates, then why do lenders make it seem as though they are all able to offer the “best rate” around?
Lenders are in the business of student loans, they want to secure your business. The leeway a lender does have with federal loan consolidation is in the borrower benefits—the little perks that they are able to send your way. For example, some offer a discounted rate for so many on-time payments or for borrowers that agree to setup automatic checking account withdrawals and most require no credit checks.
The Federal Family Education Loan Program (FFELP) includes a loan consolidation option. Through a private lender you may consolidate almost all your federal loans even if multiple lenders hold the loans. Look for the program that best suits your needs, especially in the borrower benefits:
- Sallie Mae’s Federal Student Loan Consolidation Program offers a unique “concierge service” that frees you from the paperwork part of the process. Other benefits include the long-term experience the company has in the industry and no associated fees that are typically bundled with other loan programs.
- Nelnet Federal Loan Consolidation requires you have at least $7,500 in federal loan debt and be free of default. Borrower benefits include interest rate deductions for use of their online services, including eSignature and automatic checking account withdrawal.
- Besides student loan providers private banks, like Bank of America, also provide a federal consolidation loan. Loans in default are not eligible and at least one of your loans must be originally through BOA.
