Loan servicing for Direct Loans and FFEL Loans is handled by private companies working on behalf of the federal government
Simplify Monthly Payments
Borrowers with multiple federal loans may have more than one loan servicer, each of whom bill separately for the loans they manage. Consolidating federal loans enables the borrower to obtain a single monthly payment with one servicer. If a borrower already has a single payment but doesn’t like their loan servicer, they might get a different one after taking out a new consolidation loan. This is not guaranteed as the government – not the borrower – chooses the loan servicer of the Direct Consolidation Loan.
Obtain a Fixed Interest Rate
The federal government has not issued student loans with variable interest rates since 2006. However, some borrowers are still paying off these older vintage loans. Refinancing variable-rate student loans with a fixed-rate Federal Direct Consolidation Loan eliminates the risk of higher payments should interest rates rise.
Strategies to Consider Before Consolidating
Loan consolidation can’t be undone, so borrowers should proceed carefully. If loan consolidation is the right choice for one or more loans, consider the following strategies:
- Avoid including loans with the highest interest rates in the consolidation loan, so that they can be targeted for quicker repayment
- Avoid consolidating loans with a large number of qualifying payments toward loan forgiveness, as consolidation resets the loan forgiveness clock to zero
- Consider private loan refinancing if your credit is strong and you can qualify for a much lower fixed interest rate.
Keep in mind refinancing federal student loans into a private loan means a loss in many benefits income-driven repayment plans, any federal forgiveness programs, generous deferment options, and more.
- Wait until your grace period has ended
- Carefully consider whether to include a Federal Perkins Loan in the consolidation loan, as doing so loses some of the benefits of a Perkins loan
A Federal Direct Consolidation Loan does not lower Read Full Article the cost of borrowing. Read more “Loan servicing for Direct Loans and FFEL Loans is handled by private companies working on behalf of the federal government”