If you’ve financed your education with a variety of student loans and are now facing a barrage of monthly payments, you may find that a student loan consolidation will work to your advantage. But if your loans are courtesy of the Federal government, you may not be surprised to learn that there is a plethora of regulations for you to follow in applying for student loan consolidation.
FFEL And Direct Consolidation Loans
The US Federal government offers two school loan consolidation options, the Federal Family Education Loan Program, or FFEL, and the Direct Consolidation Loan program. It’s up to you to understand how they differ.
If you have existing school loan consolidations which you wish to combine, the Direct Consolidation Loan Program must be willing to accept them. While some FFEL lenders may accept all eligible all for consolidation, others lenders may accept only FFEL loans. But if an FFEL lender refuses to include your non-FFEL loans in a school loan consolidation, it may offer you an alternative way to consolidate them.
FFEL school loans consolidations are available with a variety of repayment options. They include the standard, graduated, extended, and income-sensitive repayment plans, and while every FFEL lender offers them, the details of each is different. The income-sensitive option, for example, factors the total student loan debt into the amount of the monthly repayments.
The Direct Consolidation Loan Program, on the other hand, has the standard, extended, graduated, and income-contingent repayment options. The income-contingent repayment option is based on factors including the borrower’s adjusted gross income, family size, and amount of school loan debt.
Even those who have defaulted on an FFEL consolidation loan may be considered for consolidation of their default into a second consolidation, but if you are in this situation you may have to hunt for a lender to accommodate you. The Direct Consolidation Loan Program will also permit the consolidation of defaults, and if you can find a lender who will do it, you will have your eligibility for Federal student loans restored.
The Direct Consolidating Loans Program will permit you to consolidate your loans while you are enrolled as a student, and if you qualify, will give you a six-moth grace period before you must begin your monthly loan payments; applying for consolidation while you are a student may also earn you a lower interest rate. The FFEL, on the other hand, only allows school loan consolidation when you have left school when all your loans have reached their grace or active repayment periods.