Federal Student Loan Consolidation Myths
When it comes to consolidating your federal
student loan or loans, there have been many beliefs that people have come to
consider as hard-core facts. Sadly, this can cost a person hundreds if not
thousands of dollars. Fortunately, a little loan consolidation knowledge can
help out and save big bucks in the long run.
Perhaps the greatest student loan consolidation myth is the belief that
consolidating your federal student loan or loans will always save money or cost
less than paying the total amount of the loan or loans. This is not always true
and in most cases consolidating your federal student loans will cost more in the
long run. Another common federal consolidation belief or myth is that you can
only consolidate federal student loans if you have more than one loan. Lastly,
many believe that it is required to consolidate with you original lender. First,
it is important to understand what federal student loan consolidation is before
you can unfold these myths.
Federal Stafford Loans, PLUS Loans, and Perkins Loans are all student loans
provided by the federal government. The two programs that provide these loans
are known as the Federal Family Education Loan Program (FFELP) and the Federal
Direct Student Loan Program (FDLP). Consolidation loans will reduce a borrower’s
monthly payments and extend the term of the loan. Federal consolidation loans
can have a term from ten to thirty years in most circumstances. Many people
choose to consolidate their federal student loans as a means to simplify the
repayment process. The idea of having one loan to pay off over a longer period
of time seems easier to some than repaying several over a shorter period of
time.
Now that some basic knowledge has been gained, let’s examine the first myth. Do
you really always save money with a consolidation loan? The answer is no. In
most cases, the amount that is repaid over the longer term of a consolidation
loan is more than what would be required for the original loan or loans.
Interestingly, many federal student loans will forgive student loans in some
circumstances. This option is typically lost if when a person chooses to
consolidate. For example, the Federal Perkins loan has a cancellation feature
for teachers in certain low-income schools. Also, the Federal Perkins Loan has a
fixed interest rate of 5%. This rate may be better when compared to a
consolidated loan’s interest rate.
So, is the option of consolidation given when a person has only one federal
student loan? Yes it is. To be given the option of consolidation with only one
federal student loan, the borrower must have a loan balance over a certain
amount. Who can consolidate your loan or loans? That’s simple. Consolidation can
be conducted with an entirely new lender as well as the original lender.
However, in most circumstances it is much simpler to consolidate with the
original lender rather than choosing another.
Consider this general information when considering a consolidation loan for your
federal student loan or loans.