DIRECT LOAN CONSOLIDATION: Bundling Loans Into One

2007-03-08 10:33:40

( Financial )



A common problem for people with multiple federal educational loans is keeping track of the payments they have already made, not to mention the burden of cumulative monthly repayments for the loans.

If your deferment and forbearance periods have already been exhausted, then it may be time for you to consider getting a federal direct consolidation loan which is basically a bundled federal loan.

Put simply, a federal direct consolidation loan is loan where all your direct and/or federal family education loans (FFEL) are bundled into a single loan with the same interest rate.

Usually, the interest rate for direct loan consolidation is the average rate of all the combined loans and is fixed for the life of the loan. The interest rate cannot exceed 8.25 percent.

While there are drawbacks to direct loan consolidation like ending up with a higher interest rate for some of your individual loans, a lot of benefits may also come from it. The most obvious perhaps are lower monthly payment fees.

Direct loan consolidation allows you to reduce your monthly payment by as much as 50%. Another benefit is that it allows you to stretch your payment period from the standard 10 years to as long as 30 years depending on the total loaned amount.

Generally, direct loan consolidation involves only two conditions for eligibility. You must have at least one direct plus loan or one FFEL loan in grace period, repayment, deferment, or default status. Also, the student beneficiary should no longer be in school.

Those who don’t have direct loans can also qualify for direct loan consolidation provided that they have at least one FFEL loan and have been unable to get a federal consolidation loan with an FFEL consolidation lender.
People who are unable to obtain acceptable income-sensitive repayment terms for their federal consolidation loan can also qualify for direct consolidation loan.


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