Government Student Loan Consolidation

Government Student Loan Consolidation provides a way for those with existing federal student loans to consolidate into a single loan consisting of lower payments for a longer period of time. Normally Federal Student Loan Consolidation terms fall between 10 and 30 years.

Government Student Loan Consolidation is made possible by both the Federal Family Education Loan Program and the Federal Direct Student Loan Program. The programs include consolidation loans, allowing students to consolidate Federal Perkins Loans, PLUS Loans and Stafford Loans into a single loan.

There are three types of direct consolidation loans, namely Direct Plus Consolidation Loans, Direct Subsidized Consolidation Loans and Direct Unsubsidized Consolidation Loans. With the Direct Government Student Consolidation Loan, a student has to make only one monthly payment.

The FFEL and Direct Consolidation Loans have the same rate of interest, which is fixed according to the formula recognized by the law.

The consolidation loan, having a fixed interest rate, results in lower monthly payments and a longer loan term. With government student loan consolidation, the rate of interest is fixed for the entire life.

Rates normally increase each year on July 1st. Federal Student Consolidation loans have increased considerably since 2003. With loan rates increasing, it makes sense to lock in rates now and consolidate existing loans into a single payment loan with a fixed rate, especially if you're struggling to make the payments of all existing loans.

Government Student Loan Consolidation - Benefits

The main benefit offered by Government Student loan consolidation is the reduction of loan payments to a single payment, at a lower amount. You may be eligible for a lower interest rate, depending on the start date of the original loans.

If you have borrowed more than $5000 in private loans, have a debt amount exceeding 8% of your income and are struggling financially, a federal student consolidation loan can help you avoid default on the original loans. However, keep in mind that you cannot consolidate both private and federal loans into a single federal student consolidation loan as this would result in a loss of the federal loan benefits.

Further benefits include the ability to postpone making payments, longer repayment terms and less stringent credit requirements. The lower monthly payments frees up more money to meet other living expenses such as car payments, housing expenses and career-related needs. Since there are no overpayment penalties, you can make larger payments when it becomes affordable and reduce you payment terms.

Consolidating federal loans into private loans will result in a loss of federal loan benefits.

Government Student Loan Consolidation - Who's Eligible?

Any student with a federal loan is eligible for government student loan consolidation. But there are some requirements:

The student must have more than one federal student loan

Students must be in good standing with their loans

Government Student Loan Consolidation - Interest Rate and Payments

Consolidation loans typically have longer terms (10 to 30 years) than other loans. The purpose is to provide the debtor with an opportunity to make lower payments, therefore reducing the financial strain. Even though the monthly payments are lower, the total amount paid over the term of the loan is larger than the total amount of the original loans. The government student loan consolidation protects the student's rate of interest.

Government Student Loan Consolidation provides for a fixed interest rate that is calculated as the weighted average of the interest rates of the loans being consolidated with relative weights being assigned to the amounts borrowed with a cap of 8.25%. It's important to remember that features of the original loans, such as special forgiveness circumstances and post graduation grace periods, are not carried over in to the new consolidation loan.

Government Student Loan Consolidation - History

1986 - Federal Loan Consolidation Program was created

1998 - The U.S. Congress changed the interest rate to the fixed rate weighted mean, effective February 1, 1999. Prior to this date, consolidation loans had a variable interest rate which was determined by the loan origination center.

2008 - Many loan consolidation programs were suspended due to unrest in the financial and credit markets. The suspensions include Nelnet, Next Student and Sallie Mae.

The HEA or the Higher Education Act provides for a loan consolidation program under both the Direct Loan Program and the Federal Family Education Loan Programs. With these programs, a government student consolidation loan is created and the borrower's original loans are paid off.

The interest rates for the government student consolidation loan may be considerably lower compared to private student loans. The monthly payment tends to be lower as repayment terms are extended to longer periods. As a result of these benefits, it's more likely that students will be consistent in repayment of their government student consolidation loan.