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Student Loan Consolidation: Consider Short and Long Term Finances

loanFor those interested in federal student loan consolidation programs, there are qualifications which must be met. For most people with federal loans, consolidation is an opportunity to group loan payments into one affordable monthly cost. The interest rate applied to the new loan is the average of all the other loans with an addition of one-eighth percent with the interest rate capped at 8.25%. For many debtors, this makes for a more budget friendly expense.

*In order to qualify for a Direct Consolidation Loan, you must have at least one of your federal loans in its grace period (the time between graduation and first scheduled payment) or in repayment.

*Defaulted loans will not qualify. In order to include any default debt, a debtor must first make payment arrangements with the loan servicer or the debtor must agree to repay the student loan debt consolidation payments under the terms and conditions of Income-Contingent Repayment Plan or the Income-Based Repayment Plan.

*In most cases, a current consolidated loan may not be part of a new consolidation loan unless an additional Direct Loan or FFEL Program Loan is included. There are unique certain circumstances in which the reconsolidation is allowed without including a new loan. Check with a federal consolidation expert to know if your debt is eligible for reconsolidation.

One of the more important rules for loan consolidation which too often gets ignored is to check for other types of savings eligibility prior to putting your debt into consolidation. Because this repayment plan is offered for private loans, it is a more common approach to loan affordability. With federal student loans though, it may not bring a debtor the most savings. Because consolidation can cancel out eligibility for other federal benefits, it is always best to seek out all eligible programs.

Student loan service programs work through the debt portfolio to make sure it is the best plan of action.

*Federal student loan portfolios will be reviewed. Debt amounts, interest rates and payment amounts will all be taken under consideration.

*The total payment amounts will be compared to your budget availability. You may not want to include all loans into you consolidation loan. if the interest is small and the payment is very affordable, it will save you money to pay the loan off as is.

*Using a consolidation calculator, the loan expert will determine the monthly payment amount if consolidated. You will know how much you will owe each month and for how long you will be making the payments. Consolidation loans typically shrink the monthly cost but lengthen the term of the loan.

*Compare the current costs to consolidation payments. How much would you save in the short-term? How much more will is cost in the long-term? You may want to reevaluate your budget and see if you can make room for current repayment costs.

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