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How Do You Consolidate Federal Student Loans?

Many students are facing federal loan debts that will follow them for the rest of their lives. These loans make it difficult for students to secure financial stability after graduation. However, the Department of Education addresses this concern by offering students the option to consolidate their federal student loans. The consolidation process allows students to combine their total loans under one umbrella, and make one monthly payment towards their overall balance. Nevertheless, there are some stipulations to the program. The one important stipulation to consider is qualifying. Not every student will qualify for the program. Therefore, it is important to read the terms of each loan agreement and only agree to the terms if you are satisfied with the conditions.

How to Consolidate Your Student Federal Loan

The process begins with completing an application with the (DOE) U.S. Department of Education Federal Student Aid Office. You will be able to complete your application and promissory note online. Through this process, you are able to secure a new loan agreement, which will replace your existing loan or loans and the existing terms. If your current loan payments are too high, this might be a good way to save money. Consolidation allows you to take your federal loans, regardless of how many you have, and combine all your separate payments into one affordable payment.

At this time, private student loans are not covered under the DOE consolidation program. However, other loan options are available for non-qualifying loans. The answers you put on your application will determine whether or not you will receive a loan consolidation.

What Loan Consolidation Will Not Do

Often times, loan consolidation is confused with loan refinancing. First of all, loan consolidation is not a forgiveness program but rather a way for you to reduce your monthly payments. The process lets you opt in for a refinance option meant to save you money while paying down your federal and private loan debt.

However, there are some things that federal student loan consolidation will not do, including eliminating interest rates. Interest rates cannot be consolidated alone, according to Forbes, “Your Guide to Loan Consolidation.” If you consolidate your loans, the interest rates will follow, and depending on how you set up your plan, the rates may be higher, fixed or variable.

Although refinancing is an option for federal student loans through the Department of Education, it is not an option for private student loans. As with any loan agreement, there are always pros and cons to consider.

The Benefits of Student Loan Consolidation

Students stuck with paying multiple monthly payments can negotiate for one affordable payment under a new consolidation program. Students with a loan default can qualify for an alternative for loan rehabilitation. However, the cost of extending payments for lower monthly payments comes with a cost. As stated earlier, the interest rates will not disappear, but they will increase over the term of the loan. Which means, students will end up paying more in interest rates with an extended loan agreement, than with a shorter one. Students who do not qualify for student loan forgiveness might find this option to their advantage.

Students can choose a different loan provider if their current one is not working out. This type of flexibility makes the consolidation process easier to manage. Students can change or select how to pay down the interest on their loans, either through a variable or fixed interest rate.

Wrap Up

One key fact students need to know is detrimental to the consolidation process. If you plan to consolidate your federal student loans, do not refinance them. Refinancing your federal student loans makes them ineligible for consolidation. Instead, they become private loans, and the Department of Education will not consolidate private loans. There is a possibility that you might lose credits already paid towards an PSLF or IDR plan when consolidating some loans.