Even wonder why you would need a Federal Consolidation Loan? Well, as each year dawns into a new one, higher education is costing that much more with each passing semester. Not only do universities find ways to increase yearly tuition despite objections from the student body, the cost of living rises and the cost of school supplies as well….students just don’t catch a break. By the time you are done with the last semester of your last year, you are neck deep in debt and faced with few job opportunities as a new grad. But, the government understands your pain (a little bit) and has come up with Federal Consolidation Loans to help pay off your education debts.
What is a Federal Consolidation Loan?
A Federal Consolidation Loan is built to help new graduates and their families pay off education loans. Most loans from the government- federal and state- as well as most private loans can be consolidated into one federal consolidation loan. With so few ineligible loans, it is very likely that many of your education loans can be neatly consolidated into one loan. Unfortunately, though, while you can apply with your parents to consolidate loans, you may not be able to consolidate loans with your wife as a married couple.
Why Federal Consolidation Loan?
There are several reasons you should consider a Federal Consolidation Loan:
- Several Creditors: Many of us who have education loans know that you really have not one loan with one creditor, but several of them- all of which come due at the same time. With a consolidation loan, you can combine all of them into one loan. So, one monthly payment only- to one creditor. In addition, combining several loans may also reduce your monthly payments.
- Interest Rates: Interest rates for education loans can be quite high and when several education loans come due at once, managing interest rates can be challenging. But, when you consolidate with Federal consolidation loans, you stand a good chance of getting a good interest rate for all your outstanding loans. Interest rates on education consolidation loans cannot exceed 8.25%
- Length of Repayment: Well, the longer duration of your loan, the more money you will be paying your creditors. More monthly payments, more interest and more principal. So, if you’ve got a long way to go on your loan repayments, consider a federal consolidation loan to keep your payments, interest rates and debt to a minimum.
- Flexible Repayment: We can’t always predict the future, so federal consolidation loans also have built in flexible repayment options to pay back your debt.
Where to Get a Federal Consolidation Loan?
It is fairly easy to apply for a federal consolidation loan. Visit http://loanconsolidation.ed.gov/borrower/bapply.html and get directions on how you can apply online, over the phone or using a paper application to apply for and find out if you are eligible for a consolidation loan. You can make changes to your application, and find your application’s status online.
When to Get a Federal Consolidation Loan?
While you can start looking at options while you are still in school, most federal consolidation loans require you to be out of school before loan consolidation can begin. In addition, most education loans also offer a grace period after you are out of school- a short period of time when you do not have to pay back your loan and concentrate on finding a job. In order to qualify for a consolidation loans, you also have to be past the grace period.
Who Qualifies for a Federal Consolidation Loan?
Here’s who can qualify for a federal consolidation loan:
- You must have at least one Direct Loan or Federal Family Education Loan
- You must have completed your education and graduated from school
- Your loans must not be in ‘in school’ status- meaning, in the grace period of loan repayment
- You must be able to make satisfactory repayment agreements
- You also must not have another direct consolidation loan to your name.
Do you meet all these requirements? You may be eligible to apply. In addition, you have several other options if you are in the Armed forces- you may qualify for loan forgiveness or for no accrual of interest while you are in active duty.
Consider, though, that once you have approval for a consolidation loan, the consequences for defaulting on a federal consolidation loan can be severe too:
- The department of Education can demand that you pay back what they paid out to cover your loans in full
- The department would also be able to withhold any Federal income tax refunds you may be eligible for
- It can have a detrimental effect on your credit rating as the department of education would report these defaults to all credit agencies
So, start owning more of the degree YOU worked so hard for with a Federal consolidation loan. With only one loan and reasonable interest rates, you’ll be on the way to being free of your education debt in no time.