Finding the Best Stafford Loan Consolidation Programs
Comparison Shop for Best Deals
Let's review. Stafford Loans come in two versions: subsidized and unsubsidized; either financed through the federal government’s Direct Loan Program or through a Federal Family Education Loan Program (FFELP) lender. You may have both types of Stafford loans; many students do. The Stafford Loans are quite possibly the most widely disbursed student loan.
A component of the FFEL program includes a Federal Consolidation Loan that allows you to wrap all your federal loans into one neat monthly payment, including your Stafford Loans.
Demand for Federal Loan Consolidation
Student loan consolidation is a commonplace business for lenders and a growing necessity for many new graduates and parents with student loans. Staggering student loan debt combined with the typical entry-level income of a new grad can spell disaster if unmanaged. Guess what? Since Staffords are among the most popular, it makes sense that almost every federal consolidation loan includes one or more Stafford Loans.
Rules of a Stafford Loan Consolidation
All federally funded student loans covered by a consolidation loan, whether through the feds or a FFEL lender, are subject to rules mandated by the feds:
- Interest rates on a federal loan consolidation are fixed per the federal government. The federal interest rate is calculated based on the interest rates attached to your federal loans on the day you applied for the consolidation loan. The “weighted average” of the interest rates is “rounded up to the nearest one-eighth of a percent” and is capped at 8.25.
- Are you a new grad within your six-month grace period? If so, you may qualify for a lower interest rate if you consolidate before your repayment kicks in.
- Since 2005, federal loans are no longer eligible for consolidation or repayment while you’re in school.
- You are not subjected to credit checks for a federal loan consolidation, either through the federal direct program or via a FFEL lender.
- There are no fees for early repayment of your federal or FFEL consolidation loan.
Consolidate Your Stafford Loans with the Direct Consolidation Loan Program
The federal government’s Direct Consolidation Loan program allows you to consolidate your Stafford Loans as well as any other federal loans. In order to consolidate under this program you must have at least one direct federal loan.
Factors to consider before you opt for consolidation:
- Where are you in loan repayment? Grace period?
- How many payments remain?
- What is your interest rate? Is it variable?
- Are you having trouble managing your monthly payments?
- How many federal loans do you have?
- Are you willing to pay more for student loans in the long run in exchange for lower monthly payments?
Do you have a direct federal loan in default?
You may be able to consolidate a defaulted loan through the direct consolidation loan program only after you have made a certain number of on-time payments. And most FFEL lenders will not consolidate a defaulted loan.
FFELP Consolidation—Be a Good Comparison Shopper
Federal Stafford Loan consolidation through a FFEL lender is best approached from the point of view of comparison shopper. There is no flexibility with interest rates, fees and credit checks, so FFEL lenders try to offer borrowers a few convenience benefits.
If your Stafford Loans are managed through a FFEL lender your first step is to consult with an account manager. He or she has immediate access to your loan account, payment history and account balance. This way you can also explore the borrower benefits your current lender offers. Otherwise you may shop around.