Direct Student Loan Consolidation       

Direct Student Loans are low-interest loans for students and parents to help pay for the cost of a student's education after high school. In this case, the lender is the U.S. Department of Education (the Department) rather than a bank or other financial institutions.

Here are the typical types of direct student loans that many are familiar with:

Federal Subsidized Loan

 This is based on financial need. Financial need is determined by subtracting the Estimated Family Contribution (EFC) as provided by the FAFSA from the Institution’s Cost of Attendance (COA). Students must have financial need. The Federal Government pays the interest on the subsidized loan while the student is enrolled in school at least half-time. Repayment begins 6 months after graduation or half-time enrollment.

Federal Unsubsidized Loan 

This is not based on financial need. Students who do not have demonstrated financial need or their need if fully met by other aid, may receive the unsubsidized loan up to the Cost of Attendance. The student is responsible for repayment of the interest while in school. The student may opt to let the interest accrued and be added to the loan during enrollment. Repayment of the principal and any added interest begins 6 months after graduation or half-time enrollment.

Federal Graduate PLUS Loan

This is for students attending graduate school. Graduate students. Students may borrow up to the cost of attendance minus any financial aid awarded. A credit check is required on the Graduate PLUS loan. Students must first apply for federal loan before a Graduate PLUS can be awarded.

Federal Parent PLUS Loan

These are low interest loans with long repayment options made available to parents of eligible dependent undergraduates students. A credit check is performed on PLUS Loan applicants. The amount borrowed is the student’s Cost of Attendance minus any financial aid awarded. The lender charges interest on the loan from the date of the first disbursement until the loan is paid in full. The current interest rate for a PLUS loan is 8.5%. The interest rate changes July 1st of each year and is capped at 9%.

Federal Perkins Loan

A low interest loan for students with exceptional need. The funds are received from the federal government and the school is the lender. The interest rate on the Federal Perkins Loan is 5%. Students must be enrolled at least half-time. Repayment begins 9 months after the students graduate or drops below half-time. Students must sign a Master Promissory Note with the Student Financial Aid Office.

While student loans are great in that you and I will probably not be able to afford a tertiary education without it. But on the other hand, it can be difficult to pay the monthly payments on time due to the high interest rate and other external factors that can be pretty challenging to your wallet.

If you have difficulty in repaying your multiple loans, be it because of the high interest rate or you simply detest the dealing with multiple lenders and issuing multiple checks every month, then you may want to consider doing a direct student loan consolidation

So what is a direct student loan consolidation? 

Consolidating your student loans generally means one lender will group together multiple loans which you have taken out. Instead of managing numerous simultaneous payments and interest rates, the consolidated loan will compile them into a single loan at a new, fixed rate.

A direct student loan consolidation is especially useful if you know you are about to default on your monthly student loan payments. A direct student loan consolidation can mean a new start since it is considered a new loan.

When you consolidate your student loans under a new loan, your existing loans will show up on your credit card as paid off, thereby increasing your credit score.

Before getting a direct student loan consolidation, you need to know the types of plans for repaying. There are four major types. You may like to investigate more to consider which is best for your needs.

1. Standard Repayment Plan

Standard Repayment Plan allows you a fixed monthly payment for up to 10 years depending on the amount you owe.

2. Extended Repayment Plan

An extended repayment plan allows you up to 30 years. Obviously, the longer the period, the less amount you need to repay each month. Do note, however that you will end up paying more as a whole if you spread your payment over longer periods of time due to interest rates.

3. Graduated Repayment Plan

Graduated Repayment Plan usually have a repayment period between 12 and 30 years. The main difference between graduated and extended repayment plan is for graduated, the amount of your monthly payment will increase every two years.

4. Income Contingent Repayment Plan

If you have a job, then this plan may be what you are looking for. The income contingent repayment plan set a monthly payment based on your gross annual income. Other factors include your family size and the amount owe. The repayment period is usually 25 years.

A word of caution, if you are close to paying off your student loans, then a direct student loan consolidation may not be suitable for you since you will be paying more due to interest rates over the long term.

However, if you have difficulty in repaying your student loans and it is still years away from being paid off, then a direct student loan consolidation may be the answer. Not only do you pay less interest over the long term but it can improve your credit rating as well.

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