consolidate student loansConsolidate Student Loans to lower your payments and improve your credit rating. But, be aware that not all loan companies report to all credit bureaus. If you consolidate student loans you should contact Equifax, Transunion, and Experian personally.

A federal student loan consolidation can save you from the stress of bills, debt collectors, and the nagging thoughts of foreclosure or even bankruptcy. A federal loan consolidation can drastically change your life for the better within weeks, months, or years depending on your current debt situation. The Higher Education Act (HEA) provides for a loan consolidation program under both the Federal Family Education Loan (FFEL) Programs and the Direct Loan Program. Under these programs, a borrower’s loans are paid off and a new consolidation loan is created.

These programs simplify loan repayment by combining several types of Federal education loans (that may have different terms and repayment schedules or may have been made by different lenders) into one new loan. The interest rate may be lower than on one or more of the underlying loans. In addition, the monthly payment amount on a consolidation loan is usually lower and the amount of time to repay may be extended beyond what was available in the separate loan programs. These features should result in more manageable debt and should make borrowers less prone to default.

Federal student loans are guaranteed by the U.S. government. In a federal student consolidation loan, existing loans are purchased and closed by a loan consolidation company or by the Department of Education (depending on what type of federal student loan the borrower holds). Interest rates for the consolidation are based on that year’s student loan rate, which is in turn based on the 91-day Treasury bill rate at the last auction in May of each calendar year.

The current consolidation program allows students to consolidate once with a private lender, and reconsolidate again only with the Department of Education. Once the student has consolidated their loans, the loans are set to a fixed rate based on the year they consolidated; reconsolidating does not change that rate. Federal student consolidation loans are often referred to as “refinanced”, which is incorrect because the loan rates are not changed, merely locked in. Unlike private sector debt consolidation, student loan consolidation does not incur any fees for the borrower.

A federal consolidation student loan is available to a student or graduate, who typically has one loan for each year of schooling. A Federal consolidation student loan is available only once under federal law. Student consolidation loan applications can be started over the phone or online, and you can consolidate at any time. Stafford loans are guaranteed student loans available to all students regardless of financial status. PLUS Loans are made to parents whose dependent children are students.

The Higher Education Act (HEA) provides for a student loan consolidation program under both the Federal Family Education Loan (FFEL) Programs and the Direct Loan Program. Under these programs, a borrower’s loans are paid off and a new consolidation loan is created. The consolidated loan will be issued in the same principal amount as the original loan, but the interest rate changes and is based on the average rate of all the loans being consolidated. Once the rates are locked in, borrowers don’t have to worry about the interest rates increasing. Conversely, they would not benefit if rates fall in the future.

You can get a Direct Consolidation Loan, available from ED, or a Federal (FFEL) Consolidation Loan, available from participating FFEL lenders. Under either program, the loan holder pays off the existing loans and makes one consolidation loan to replace them. If you have subsidized and unsubsidized loans, they’ll be grouped accordingly when you consolidate so you won’t lose your interest subsidy on the subsidized loans.

There are three categories of Direct Consolidation Loans:
* Direct Subsidized Consolidation Loans
* Direct Unsubsidized Consolidation Loans
* Direct PLUS Consolidation Loans
If you have loans from more than one category, you can still have only one Direct Consolidation Loan and make only one monthly payment.

Debt consolidation offers students a “breather” by simplifying and extending repayment. After a student debt consolidation, credit bureaus are notified that your old accounts have a zero balance. Your new promissory note will establish a new interest rate and repayment schedule. Compare rates from at least three companies. Never accept their published rates as final (they will compete for your business).

You can have a longer period of time to repay your consolidation loan than you do for the individual student loans you’re repaying, but this means you’ll also pay more interest over time. In fact, consolidation can double total interest expense. If you don’t need monthly payment relief, you may compare the costs involved and decide that to consolidate student loans is not to your long term advantage.

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