A direct consolidation loan is a provision in which several federal student debts are combined into one. During repayment, the borrower receives one bill and makes a single payment in settlement. It is an initiative by the United States Department of Education aimed at simplifying payments by student borrowers. The offer started on 17th January 2012 and is set to end on 30th June 2012.
There are number of benefits that accrue from this arrangement. The interest rates are lower and fixed, there is a longer period of time within which to complete the repayment and it is possible to rebuild damaged credit by consolidating defaulted student debts. In-school deferments and forbearance are another helpful provision to many. There are a few disadvantages though. The extended period for repayment means that the total interest rate will be higher. Some cancellation (forgiveness) provisions are also lost.
To be eligible to this arrangement, one must have at least one loan held by the Department and serviced by one of its servicers. It must be current or not more than 270 days or delinquent. They can alternatively have a Federal Family Education Loan (FFEL) which is in grace, deferment, repayment or forbearance.
There are two types of consolidation loan. These are the traditional type and the special type. There are various differences between the two. In the traditional type, all eligible debts are combined into one new one with new terms. In the special type, on the other hand, there are individual parts corresponding to each debt that was consolidated with each part retaining its original terms.
Under the provisions of the traditional type, the borrower has a longer period of time to finish the repayment thus lower monthly repayments. The downside of this is that they will, in the long run, pay back much more. The interest rate used is fixed and is a weighted average of the interest rates charged on the constituent debt. In the special type, the interest rate is a bit lower as each debt is repaid as per the original terms. The similarity of the two is that there is a 0.25% reduction in interest rate given as an incentive for payment. This only applies, however, if the servicer is repaid through the automatic debit system
The application process is free. It can be done online on the website of the Department. Alternatively, a copy of the application form and a promissory note can be mailed to the applicant or they can simply call the Department and do the application on phone. Applicants are advised to fully familiarize themselves with the advantages and disadvantages of this undertaking before they commit themselves.
Repayment starts immediately the direct consolidation loan has been disbursed. One is expected to complete the first payment in not more than 60 days. The repayment period usually ranges between 10 and 30 years depending on the principal amount and the payment plan. Deferment and forbearance may be allowed for borrowers having trouble completing their payments.
There are number of benefits that accrue from this arrangement. The interest rates are lower and fixed, there is a longer period of time within which to complete the repayment and it is possible to rebuild damaged credit by consolidating defaulted student debts. In-school deferments and forbearance are another helpful provision to many. There are a few disadvantages though. The extended period for repayment means that the total interest rate will be higher. Some cancellation (forgiveness) provisions are also lost.
To be eligible to this arrangement, one must have at least one loan held by the Department and serviced by one of its servicers. It must be current or not more than 270 days or delinquent. They can alternatively have a Federal Family Education Loan (FFEL) which is in grace, deferment, repayment or forbearance.
There are two types of consolidation loan. These are the traditional type and the special type. There are various differences between the two. In the traditional type, all eligible debts are combined into one new one with new terms. In the special type, on the other hand, there are individual parts corresponding to each debt that was consolidated with each part retaining its original terms.
Under the provisions of the traditional type, the borrower has a longer period of time to finish the repayment thus lower monthly repayments. The downside of this is that they will, in the long run, pay back much more. The interest rate used is fixed and is a weighted average of the interest rates charged on the constituent debt. In the special type, the interest rate is a bit lower as each debt is repaid as per the original terms. The similarity of the two is that there is a 0.25% reduction in interest rate given as an incentive for payment. This only applies, however, if the servicer is repaid through the automatic debit system
The application process is free. It can be done online on the website of the Department. Alternatively, a copy of the application form and a promissory note can be mailed to the applicant or they can simply call the Department and do the application on phone. Applicants are advised to fully familiarize themselves with the advantages and disadvantages of this undertaking before they commit themselves.
Repayment starts immediately the direct consolidation loan has been disbursed. One is expected to complete the first payment in not more than 60 days. The repayment period usually ranges between 10 and 30 years depending on the principal amount and the payment plan. Deferment and forbearance may be allowed for borrowers having trouble completing their payments.
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Find a summary of the benefits of taking out a Direct Consolidation Loan and more information about the Public Service Loan Forgiveness program at http://howtoconsolidatemyloans.com/special-direct-consolidation-loan-its-benefits-for-the-students/ now.
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