Rising student education fees force most students to take student loans in order to pay for their educational costs (tuition fees, accommodation costs and other miscellaneous expenses). The danger of defaulting on loan payment is best addressed by a student when s/he decides on the consolidation of his/her loans.
This enables the student to manage his/her already meager funds more efficiently along with relieving him/her of the stress s/he has to undergo when s/he faces the prospect of the monthly loan repayment obligations. Students usually take loans from different companies at different points of time, for varying durations and at different rates of interest. Student loan consolidation enables the student to tie up the different loans s/he has taken into one bunch, making it easier to handle them.
A federal direct loan is one in which an individual takes a loan not from any commercial lending institution but directly from the Federal Government, while federal loan consolidation is the act of consolidating outstanding loans.
The way a federal loan consolidation works is simple. The student is issued a new loan equal to his total loan amount after the government pays off all his outstanding loans. The new loan issued gives the student the benefit of enjoying a lower monthly payment by extending the student’s repayment term (which can stretch up to 30 years). The credit rating of the student also improves since his outstanding loans are effectively cleared when the old loans are repaid.
It also helps in freezing the interest rates at the current rates in case the rates increase in the future. The federal government, through the Federal Direct Student Loan (FDSL) program, provides direct loan consolidation straightaway. Things to be kept in mind by students while going in for consolidation are the interest rates, duration, and the incentives.
Mary Foster is a Financial Adviser with 10 years as an Accountant and Student Loan Consolidator. She is the author of Consolidation Direct Federal Loan Student Weblog. Read her latest articles and recommendations to help find a debt free plan that works.
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