Federal student loan consolidation should consider payment terms and interest rates, and avoid consolidating federally guaranteed loans under a private loan program. Loan consolidation can reduce monthly payments but may result in paying more interest over time. Federal student loan programs offer protections not provided by private student loans, so consolidation should only be done through a federal program. Variable-rate loans prior to July 1, 2006, may benefit from consolidation to reduce interest rates. Loan forgiveness programs are available for public service.
For individuals with multiple student loans living in the United States, the federal student loan consolidation process should include both an assessment of payment terms and consideration of interest rates. In general, those consolidating federal student loans should also avoid consolidating federally guaranteed loans under a private loan program. Those who have student loans from other countries should contact the appropriate government agency to find out what their options are for student loan consolidation and repayment.
For some people, federal student loan consolidation makes good financial sense. Without loan consolidation, an individual may find it difficult to make monthly payments on his student loan. In such cases, the student may face significant financial penalties, including damage to his or her credit and the possibility of being sued over the student loan balance. Loan consolidation allows him to extend his student loan payments so he can reduce the minimum monthly payment. Student loan borrowers should also consider that extended repayment under loan consolidation means they will likely pay much more interest on their loan over time. If an individual is able to make the minimum monthly payment on his unconsolidated loans, he should carefully weigh the consequences of consolidating versus quick repayment.
For individuals who took out variable-rate student loans prior to July 1, 2006, federal student loan consolidation can be a good way to reduce interest rates. After this July date, federal student loans have been issued on a fixed-rate basis, which could mean there is no savings in student loan consolidation. Another consideration is that there are some loan forgiveness programs that allow people to eliminate student loan debt through a combination of public service and consistent payments over 10 years on a consolidated student loan. If an individual enters an approved area of public service, federal student loan consolidation can allow them to quickly cancel the loan balance after completing service.
Federal student loan programs typically offer borrowers significant protections that are typically not provided to borrowers of other types of loans, including private student loans. For example, federal student loan borrowers typically have the right to delay repayment of their loans under certain circumstances, such as financial hardship or their return to school. Private student loan companies do not typically offer lenders these rights, however, even though borrowers are legally obligated to repay private student loans and cannot pay them off in bankruptcy. Therefore, those with federal student loans should only consolidate their loans under a federal student loan consolidation program and not through a private lender, as consolidating with a private lender can cause them to lose their loan deferral rights. , loan forbearance and affordable payment plans.
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