Federal Student Loan Consolidation Consolidate Stafford and Direct Loans Free

Borrowing money to finance your education was probably the first critical personal finance decision you made in your life. Now that you've nearly finished or have finished your college education, you're faced with the daunting task of repaying or consolidating your student loan debt. For most college graduates, a second equally critical personal finance decision must be made: whether or not to consolidate your student loans.

Student Loan Consolidation Lowers Payments

A little bit of math always helps to understand why so many recent college graduates choose to consolidate student loans through student loan consolidation programs. For example, a recent graduate with multiple student loans determines that she will need to pay a total of $500 per month. If she consolidates her student loans, her monthly payments can be reduced to $200 per month, or up to 60%. By simply completing the required form, this graduate can increase her available cash by $300 a month!

How to Compare Consolidation Programs

Since each loan consolidation company is doing basically the same thing - consolidating multiple student loans into one new loan - how can one offer a rate lower than the other? Setting business economics aside, there are stated incentives that a borrower can compare when choosing a student loan consolidation program. A good student loan consolidation program will reward borrowers for on-time payments, for use of electronic payment methods, and for consolidating student loans promptly. Some examples include the following:

  • Save 0.60% more when you consolidate right after graduation or during other eligible grace periods
  • Save 0.25% more when you sign up to have your payments automatically deducted from your bank account
  • Save 1.0% after your first 36 consecutive on-time payments for the life of your loan
  • - OR - Lower your rate another 2% after 48 consecutive on-time payments
  • No repeal of rate reduction if you go into forbearance, deferment, or if you miss a payment

Additional benefits you may review while choosing a student loan consolidation company are no-hassle applications, no credit checks when applying, no need to know the details of your student loan portfolio, no need to have a co-signer, and also look for an all-digital application with an electronic signature option.

Student Loan Consolidation Credit Report

Student's should get a free credit score from all 3 bureaus, before or after you apply for your student loan consolidation. The link provided gives student's access to their credit reports online from all three reporting agencies: TransUnion, Equifax, and Experian. Knowing your credit score and being informed of any credit issues is important when consolidating student loans. If you miss a student loan payment or make a mistake during the consolidation process, this is one sure way to know the impact on your credit. If you are looking to consolidate student loans using alternative methods, your interest rate may also depend upon the information viewable on your credit report.

Federal Student Loans You Can Consolidate

Most graduates that we have heard from are interested in consolidating their Federal Stafford (subsidized and unsubsidized) and Federal PLUS Direct Loans. The general rule is that if the Federal Stafford and PLUS Direct Loans are under the same borrower's Social Security Number, a simple Federal Student Loan Consolidation program is all that's needed, and the application can be submitted online. Following this rule a parent cannot consolidate their PLUS loans with their child's Stafford loans.

Graduates with a mixture of Perkins, Private, Stafford, and PLUS student loans should be cautious if they are seeking to consolidate loans of different types. Doing so may make you ineligible for benefits previously tied to the original loan type. Future teachers and social workers who expect to qualify for loan forgiveness, for example, could lose such benefits if they consolidate loans of different types.

Student Loan Payments, The Next 30 Years

The primary goal of federal student loan consolidation is to immediately reduce monthly payments during those critical first few years out of school. A 60% reduction in student loan payments is substantial and often necessary until your career progresses and your household income increases. Many forget, however, that there are no prepayment penalties built into the free federal student loan consolidation program. This means that you can effectively reduce future interest to be paid, by paying more than the minimum monthly amount stated on your new consolidation student loan. An alternative personal finance strategy is to instead use that extra money to pay down higher interest rate debt such as credit cards and auto loans.

— Student Loans Ed

Related Student Loans Ed Web Pages
» Student Loan Consolidation Calculator
» Federal Direct Loans Program
» Federal Stafford Student Loans
» Repayment of Student Loans
» Student Loan Default