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Along with gaining a new degree, many graduates will also leave campus with student loan payments in their pockets. The burden does not stop here, as they still need to fit debt repayments to their post-graduate budget. Consolidating your federal student loans is one of the best way to benefit from the student loan forgiveness program, especially for the public workers.
Consolidation of federal education loans provides graduates an option to combine their student loans into one “mega loan.” This process can lower your payments but might affect your interest rate or benefits. Should you consolidate your student loans? Find out how it works and how it can affect your debts in the process.

How loan consolidation works

Loan consolidation happens when the debtor uses a new loan to settle several smaller student loans. It will help you avoid the hassle of making multiple payments to multiple lenders. The borrower’s task is greatly simplified by centralizing the loans to one bill. Even more so, loan consolidation become more attractive as it lowers monthly payments by giving you longer repayment periods that can last up to 30 years.
There is no application fee to consolidate your federal education loans into a Direct Consolidation Loan. The new loan will have its own interest rate, own repayment terms, and own terms and conditions. You might also gain access to alternative repayment plans to be able to switch your variable interest rate loans to a fixed interest rate.

Consolidating federal student loans

When it comes to consolidation, the types of loans you have matter. Most federal loans such as Stafford, Perkins, Direct Plus, and Supplemental loans can be consolidated with other student loans. The interest rate of your consolidated loan is an average of the interest rates on the loans you are consolidating. Even if your rates seem high, the consolidation loan rates still cap at 8.25%.

The advantages of consolidating your loans

You are eligible to consolidate original loans after you graduate, leave school, or drop below half-time enrollment. Another major advantage of federal consolidation loans is that the borrower does not need an excellent credit score to be eligible. Even if his or her loan is in default, one can still apply any time and get a fixed interest rate. Despite the market fluctuating, borrowers will never pay more than 8.25% interest rate.
Unlike loans from private lenders, federal consolidation loans know how to protect borrowers. Borrower protection terms include deferment or the ability to suspend payments under certain circumstances like military duty, education, or unemployment. The clause of forbearance also allows borrowers to postpone payments in cases of financial shortcomings. Also, all federal consolidation loans and some private ones don’t have prepayment penalties so you can save hundreds and even thousands in interest charges.
When evaluating consolidation options, borrowers should weigh the new loan’s hardship protections and repayment terms, as well as the interest rate.

The disadvantages of consolidating loans

There is always a catch in consolidating federal or private loans. While loan consolidation can dramatically lower monthly payments, it can also cost you some benefits. Here are the disadvantages of consolidating loans:
• You are going to subject yourself to substantially more interest charges
• One real downside happens when you choose to lengthen your repayment period. This will entail more payments and higher interest rates.
• There is always a chance of losing any borrower benefits offered with the original loans. These include interest rate discounts, principal rebates, and cancellation benefits.
Fortunately, you can benefit yourself from the federal student loans forgiveness program to get the rest of your student loans forgiven after 300 consecutive payments you make or 10 years for nurses, teachers, and public workers.

How to consolidate your student loan

Almost all types of federal loans can be consolidated. But if you are opting for the best rates without a co-signer, you might need a higher credit score. Students who want to consolidate loans can do so through the Department of Education’s website. You can also apply by downloading a paper application and sending it in through mail.
The required information and documents are the following:
• loan account numbers
• estimated payoff dates
• contact information for each of their loans holder
If you are pinning for consolidation, you should also review the repayment options. Once the application for consolidation is submitted, it would take 60 to 90 days to officially complete the process. In terms of paper works and other documents, the same happens when consolidating private loans. The only deviance is you will need to apply through a private lender.