Should I go for Federal Student Loan Consolidation in US?

In the United States, the Federal Direct Student Loan Program (FDLP) enables you to consolidate your student loans offered by government like Stafford Loans, PLUS Loans and Federal Perkins Loans into one single loan. This can help you reduce your monthly repayments with longer duration for the loan. Your interest rates also will be fixed for the life of the loan.

Pros and Cons for Federal Student Loan Consolidation

The advantages of federal student loan consolidation includes

• Lower monthly payments
• You will have one bill and will have to deal with one lender instead of multiple lenders
• No prepayment penalties
• A fixed interest rate
• There is no limitation on the number of loans that can be consolidated
• Also as per federal rules, there is no required minimum balance

The disadvantages are:

• A longer repayment period
• You will eventually pay more interest (calculated as the weighted average of all loans and rounded up to the nearest 1/8 of 1%)
• You will not get all incentives offered by the current loans
• You will also incur loss of deferment subsidy on Perkins loans

Therefore, according to the U.S. government as of July 1, 2010, all federal student loan consolidations are processed by the U.S. government through the Federal Direct Loan Program (FDLP).

Why opt for Federal Student Loan Consolidation?

In the United States, Federal student loan consolidation offers lower interest rates which are dependent on the student loan rates existing at the time the loan was offered which is dependent on the 91 the rate of the day Treasury bill auction in May last in each calendar year. The student loan consolidation rates can be anywhere between 4.70% and 8.25% for federal loans Stafford 9% for PLUS loans.

The timeframe for consolidating your student loans are usually for longer terms than other loans. This can be from of 10 to 30 years. The fixed interest rate is evaluated based on the weighted average of the interest rates of the loans being consolidated, assigning relative weights according to the amounts borrowed, rounded up to the nearest 0.125%, and capped at 8.25%.

Therefore, it is recommended to opt for Federal student loan consolidation due to lower interest rate which can be spread out for a longer duration so that you will be burdened by huge repayment schedule.