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How the Federal Student Loan Consolidation Programs Work

For students, the debt burden at an early stage in their life could be a cause of great worry. Sometimes students have to get more than one student loans in order to finance their studies. Hence the debt increases even more. Federal govt. recognizes this problem faced by the students and hence created ways and means to help the students deal with it.

Courtesy Higher Education Act (HEA), there are several student loan consolidation programs available. You have loan consolidation programs under Federal Family Education Loan (FFEL) programs and you also have loan consolidation programs under the direct loan program.

But how do these programs work? And how does Federal student loan consolidation make the student debt more manageable? Let’s take a look in order to understand this before actually rushing to a student loan consolidation service.

Any loan consolidation program works by paying off the current loans or current debts (i.e. the student college loans or student debts) and creating a new loan account i.e. the consolidation loan account. Generally, as part of student loan consolidation, several Federal student loans are consolidated as a single loan. The college loans that are consolidated might have different student loan terms, student loan interest rates and schedules. The outstanding amount, of course, on the various loans being consolidated would be different in most cases. This means there are a whole lot of student loan consolidation calculations that must be carried out in order to arrive at the amount, the student consolidated loan term and student consolidate loan interest etc.

The student loan interest calculations are done by considering the current student loans and the student-loan interest on those loans. Federal uses a formula to calculate the student consolidation. Similarly, Federal governed guidelines have been established for start of the repayment of the loan (at the time of writing this article, this period was 60 days from the disbursement of the consolidated loan). Similarly, the payback term is generally kept between 10-30 years. Like other things, there are certain factors (again Federal governed) that are considered for determining the eligibility on the repayment term.

The two main factors that are considered for the repayment term on the consolidated student college loans include the student education debt amount that you are consolidating and the repayment option you select.

More details about the Federal student debt consolidation, their eligibility criteria and how they make student debt more manageable is discussed in our other articles.

ABOUT THE AUTHOR
Manu Goel is senior editor for www.estreetloans.com and www.student-loans101.com. He writes financial articles for the two sites and provides information on loans, consolidation, home equity, auto loans, student loans, and payday loans.