Federal Student Loan Consolidation exists for student loans that you have borrowed from the government for paying for college. You may combine all of your government student loans into one big student loan with a longer payment term (and hence, lower monthly payments). Make sure to first read my blog on the general benefits of student loan consolidation and how to do it, before reading the specifics here.
The following student loans are some that are eligible for federal consolidation:
-Federal Nursing Student Loans
-Federal PLUS and Federal Direct PLUS parental loans
-Stafford Loans
-Perkins Loans
-Federal Consolidation and Federal Direct Consolidation Loans (if reconsolidating)
-Any other loans from the government you may have
As with most student consolidation loan programs, you will have the following general financial aid benefits (see other post for more details on them):
-Single, lower monthly payments
-Alternate repayment plans
-extended repayment period
- Ability to choose any lender (if receiving loan through FFELP and not Federal Direct)
-No pre-payment penalties
-Chance to improve credit score
In addition to these, here are other details and financial incentives on federal student loan consolidation:
-Fixed interest rate – You will not have to worry about paying more in monthly payments than what you originally signed up for. Interest rate will be the weighted average of the current interest rates of your federal loans. This is not the case for private student consolidation loans, where the interest rate can vary.
No minimum balance required – If you only have $1,000 in federal student loans, you are still eligible to consolidate. Note this will only work for Federal Direct Consolidation Loans; through FFELP, where a lender provides the money which your government insures, you may be required to have a certain balance accrued in federal loans
-Extend repayment up to 30 years
-Credit is not a factor – you are still eligible for this financial aid even if you have bad credit!
As far as drawbacks, federal student loan consolidation has the following general drawbacks:
-More interest (unless are using improved credit thing) accumulated in the end
-Have a longer time before loan is fully paid off
-Might lose repayment incentives from original lending companies
-Loss of deferment or grace period w/original loans
In addition to this, here are drawbacks specific to federal student loan consolidation:
-Cannot include consumer debt loans, personal loans, or bank or credit union loans. I don’t see why you would anyways, but this is one of the rules that I’m at least a few people out there don’t like this.
-If you do choose to do a Federal Direct Consolidation Loan, you will not have the option to choose your lender.
Other than this, Federal Student Consolidation Loans share most of the characteristics that I described in my posts on general student consolidation loan information. If you haven’t read those yet, definitely read them for more information.
Overall, if you plan to consolidate, Federal Student Loan Consolidation is your best option and you should do this before private loan consolidation.In my next posts, I’ll describe the repayment options available, some other things to consider for student loan consolidation, the difference between the two types of federal student loan consolidation, and answer some frequently asked questions =)
