Federal government student loan consolidation
Student loans means loans or borrowings made by the students from the various lending agencies such as banks, insurance companies, mutual funds etc. for meeting out their various study expenses. A student loan consolidation is the one integrated loan to refinance the multiple loans taken by a student. Any student loan consolidation scheme of the federal government like those in USA is called federal government student loan consolidation programme.
Types: There are two types of loan consolidation schemes available in USA: -
Direct schemes: Under the direct schemes federal government student loan consolidation comes the schemes undertaken directly by the federal government. Any student can approach directly to the US department of education for such loan. The biggest advantages of this loan is the Subsidized rate of interest applicable on this loan by the government. Also the student may apply for newer consolidation loan to the government even if he fails to repay the previous loan within the time. There are three types of direct consolidation loans at US department of education:- Direct Subsidized Consolidation Loans Direct Unsubsidized Consolidation Loans ; PLUS Consolidation Loans Even if a student apply for all of the above consolidation loans, only one loan application will be considered by the US Department of Education.
Indirect schemes: Under the indirect schemes of the student loan consolidation comes the schemes which are available to the student through the intermediaries such as Banks, financial institutions etc. However, the student has to repay interests to the government itself. Most of the federal consolidation loans come under this category. The various student loans such as Stafford loan, Loans for health professional students, nursing students loans, loans for disadvantaged students etc. are available for consolidation at the various lending institutions in USA. The lenders who contributes about 87.4% of the Federal family Education Loan programmes in US are College Loan Corporation, Citibank Student Loan Corporation, Pittsburgh National corporation, South Carolina Student Loan Corporation, Washington Mutual Savings Banks, California Higher Education Loan Authority etc ADVANTAGES: There are several advantages of the federal student consolidation loan.
They are : 1) No processing fee: According to the federal Government Directives, there is no processing fee for this type of loan. No Lenders who provides consolidation loans under the indirect schemes of the US Government, can charge any application fee from the students and their parents for these loans.
Long period for repayment: Federal government student loan consolidation are generally given for the longer period i.e., for 10 years to 20 years. Therefore, it makes easy for the students and their parents to repay the entire loan
amount either in installments or one-time payments. However, the longer the repayment period of a consolidation loan, there will be more interests applicable on such loan. Therefore, it is in the interests of the students and their guardians to repay the entire loan amount earliest as possible. COST SAVERS: A direct consolidation loan is a cost saving loan. If s/he acquires a consolidation loan directly from the US Department of Education, s/he needs to pay just only one monthly interest and that too, directly to the US Government Education etc. Thus the student skips the situation of being getting multiple interests bills from the various lenders in a month.
This loan is convenient also because both parents as well as the students can apply for the federal consolidation loans. However, only one loan application will be approved by the lender of a family. Also any individual can consolidate his previous federal consolidation loans and the federal consolidation loan taken by his/her spouse into one integrated loan. However, the individual ; the spouse both will be responsible for the repayment of entire consolidation loan which means if the individual passes away or becomes financial unstable then the spouse will have to repay the entire loan amount with interests. Also according to the federal government new act, no married students can apply for the federal consolidation loan.
Interests rates: The interest rate on a federal government student loan consolidation is the weighted mean of the all interests rates on the different loans, which are acquired by the student. This weighted mean is rounded up to 1/8th of the decimal places to get the interests rate on a consolidation loan. The maximum interest rate on any consolidation loan scheme is 8.25%. For example, if a student has taken Plus loans of $4000 at the 4% interests and guaranteed student loans of $3000 at 4.25% interests. Then the interests rate applicable on his consolidation loan = ($4000 * 4% + $3000 *4.25%)/ ($4000+ $3000) = 4.1%( rounded up to 1/8th of the decimal places).
Repayment plans: There are following repayment plans for the consolidation loan: -
1) Standard repayment plan: Most of the consolidation loans come with standard repayment plan, which is for 10 years duration. A student under this scheme has to pay a fixed amount of at least $50 per month for up to 10 years. The biggest advantages of the borrowers is the lowest interests rates under this plan. As the student gets less time for repaying his consolidation loan under this scheme, s/he has to pay lesser interests compared to those applicable under other repayment plans.
2) Graduated repayment plan: Under this plan, a student has to repay the loans initially with slower amount but it grows after every two years. The span period of this plan is 12 to 30 years. Generally this plan is mostly The minimum monthly payment under this plan is about $ 25 at the initial stage but it will not exceed 1 and times of the repayment which is made under the standard repayment plan. Generally the amount which is to be repaid under this plan stood higher than the amount repaid under the extended repayment plan.
Income contingent repayment plan: This repayment plan is available only with the direct federal student consolidation loan. Under this plan, an individual has to make monthly payment, which is calculated on the basis of individuals monthly income plus total amount of the direct loans. However, Any individual for availing this repayment option must give written informations to the Internal Revenue Service Department of the federal government student loan consolidation about earning details of his/her and his/her spouse. If for any reason, individual fails to repay the total interests in a year, the unpaid interests will be added to his/her loan amount. If the Total unpaid interests amount which is added to the loan amount of the individuals during the Plan period, exceeds the total loan amount by 10%, then further unpaid interests is not added to the loan amount. The maximum repayment period under this plan is 25 years.
Extended repayment plan: Under this Plan, student has to repay at least $50 per month up to the period, which ranges from 12 years to 30 years. The minimum amount which is to be paid by the student depends upon the amount of the consolidation loans and other allowable education loans received. However, the student has to repay higher interests under this plan than the standard repayment plan.
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