What is school loan consolidation program?
School loans for meeting the educational expenses are available thru government agencies and private lenders. Millions of students have benefited from these loan facilities. Federal education loans are very popular because they are affordable and in many cases credit rating of the borrower is not an issue. There are several plans under Federal Family Education Loan (FFEL) Program for providing loans to students and their parents to pay for the students’ education. These loans are distributed either directly by the government or thru authorised private lenders. In addition private lenders offer private loans that students take to supplement their federal loans. In federal loans as well as private loans there are school loan consolidation programs that make it easier to manage those loans. It is possible to consolidate several specified federal loans into a consolidation loan. Similarly private loans can be consolidated according to the terms of the private lenders. But no school loan consolidation program has provision for consolidating federal loans with private loans.
Consolidation of loans has several advantages and some drawbacks. If you have taken several federal loans you will have to follow the repayment schedules of all of them. You will need to monitor all the loans and keep in touch with all the lenders. By consolidating those loans into one consolidation loan you have to deal with only one loan and one lender. There will be only one repayment schedule and it will be easier to manage only one loan. The interest rate will be fixed for the duration of the consolidation loan. The monthly instalment amount and the term of the loan will depend upon the repayment plan. Generally monthly instalment is less for longer duration loans.
Generally there are four repayment plans in Federal school loan consolidation program. The simplest is the Standard Plan in which the monthly instalment remains fixed for the tem of the loan and loan period is shortest. Another option is Extended Repayment Plan in which duration of the loan can be increased and the monthly instalment will consequently reduce. The third option is Graduated Repayment Plan in which the monthly instalment is low initially and gradually increases at pre-determined intervals. The borrower gets relief at the start of repayment, but has to make up towards the end. The fourth and last option is Income Contingent Repayment Plan in which borrower’s earnings are taken into consideration and then monthly instalment schedule is decided.
All these repayment schedules are for the benefit of the borrowers. But it should be remembered that longer period of the loan results in higher total payment. In longer term plans the instalment is small, at least in the beginning. But longer duration of the loan means paying interest for longer time. Therefore total outflow of funds by way of repayment is higher in longer term loans.
Before you decide to have a federal consolidation loan, you might like to know the details of the loan such as interest payable, monthly instalment amount, duration of loan etc. You can approach your prospective lender and obtain all these details and more. However there are easier methods of calculating details of your consolidation loan. Many websites have calculators for consolidation loans that visitors can use for calculating details under various repayment plans. These calculators are fairly accurate and can give you a good idea of the consolidation loans. However the final details should be obtained from the lender only.
Private school loan consolidation program can be given by the lender of private consolidation loan. You can expect considerable variations in the terms set by different lenders. While applying for a consolidation loan it may be worthwhile to find out what schemes the lender has for the benefit of the borrowers.
