School Loan Consolidation Reduce Monthly Instalments

School loan consolidation is the consolidation of several student loans into a single debt. In the U S. both the Federal Family Education Loan Program(FFELP) and the Federal Direct Student Loan Program(FDLP) have this facility to consolidate Stafford Loans, PLUS Loans and Federal Perkins Loans into one single debt. This reduces the monthly installments and ensures a longer term for the loan. The consolidated loans have a fixed rate of interest for the entire term.

If the debtor has problems in paying his monthly installments and has exhausted his deferment and forbearance options and wants to avoid default, then school loan consolidation is a good option for him. If the debtor sends installments to different lenders and wants the convenience of managing a single repayment option then consolidation gives him a choice. In that case, the single lender would be the U.S. Department of Education.

School loan consolidation offers the borrower to choose from four different repayment options. These options are designed in a flexible manner to meet the varied and changing needs of the borrower. There is no minimum amount required to qualify for a Direct Consolidation Loan and there is no fee for consolidation. Its free.

Though the terms are increased by school loan consolidation to 10-30 years, the debtors actually have to pay a higher amount by the end of the term than other loans with a higher installment. For this reason consolidated loans are not apt for all debtors. Also the fixed interest rate is calculated on the basis of the weighted average of the interest rates of the loans which are consolidated. Special features of the loans such as post graduation grace periods and special forgiveness circumstances are not applicable to the consolidated loan. If the borrower is close to repaying off his debts, then going into consolidation is not advisable.

The eligibility for school loan consolidation in the state education department is that the borrower must have at least one Direct or Federal Family Education Loan(FFEL) Program loan that is in grace, repayment, deferment or default status. Loans that are in an in-school status cannot be included in a Direct Consolidation Loan.

The Federal Loan Consolidation Program was devised in 1986. In 1988, the method of fixed rate weighted mean was created by the United States Congress. Variable rates were applied to school loan consolidation before that. In 2005, the Government Accountability Office considered consolidating consolidation loans for managing them exclusively through the FDLP. After assuming about several factors they had estimated that this step would incur an additional expenditure of $46 million. This would be counterbalanced by a saving of $3,100 million consisted in part of avoiding $2,500 million in subsidy costs. Some top consolidation loan lenders are Federal Direct Student Loan Program, Sallie Mae, Citibank, Nelnet and Next Student. Wikipedia