Federal Student Consolidation.

Should the loan be large? Should we stay as low as possible? Should we obtain our loans through the private banking sector? Should we borrow at the federal level? All of the above? And what about using co signers? Yes or no?  There are differences between federal consolidation and private ban refinancing, and it is a good idea to learn as much as possible when making such decisions. In this post we will talk about federal consolidation. The federal option is only available for students who have federal student loan balances. Privately obtained student loans can not be included in such consolidations. Basically what happens is, the federal government will combine all of your separate federal student loans into a new consolidated loan package. Payment plans for such loans have ten to thirty year terms based on the size of the loan. The interest rate is determined by an average interest rate of all loans included in the new package.

One of the great points to federal consolidation, is that that borrower has access to certain forms of financial protection. For example the income driven payment plans are designed to help a borrower make much needed adjustments when facing financial hardships. Payments are connected to income levels, and directly tied to how much you earn. Adjustments can be had annually to make sure sure you and your family are not overly burdened during hard times. Also the federal loans carry forgiveness provisions that private loans do not. Many loans can be forgiven after the twenty year mark.

Another great aspect regarding the federal consolidation package, is access to the public service loan forgiveness programs. That type of potential benefit is lost with private reefinancing, even if you find yourself working as a public servant. Public servants are often able to have loan forgiveness after ten years, and some as early as five years. If you love the idea of public service, rad heavily on the topic of loan forgiveness at five and ten year marks. It may just guide you to your career choice.

The draw backs to federal loans the higher interest. The over all term of your loan may be longer than before. For example, if your over all balance is above ten thousand dollars, it is automatic that you will have a fifteen year loan term. That is an issue if you had planned on payments being completed at ten years. It would then be put upon you to aggressively over pay the monthly amount due in an effort to reach a zero balance sooner. Some people have that over drive, others do not.

Another draw back is loss of Perkins loans forgiveness if those balances ar included in a federal loan consolidation. That is why many who have Perkins loans choose not to include those loans in a new consolidation package.

Lastly, there is never a fee charged to consolidate at the federal level. Any entity asking for fees is a scam. So please be careful.