Direct Consolidation Loan
Many college graduates are interested in consolidating student loans into a single loan and one choice is the Direct Consolidation Loan. This option, however, is only available for federal student loans; those seeking to consolidate private student loans or a mixture of federal and private student loans should use a private lender for consolidation - an alternative to federal consolidation that requires ample credit history and high income, yet can leave a qualified borrower with a lower interest rate on a new loan.
However, for many student loan borrowers, private student loan refinancing is not an easy option to qualify for, so if you need to combine your loans for any reason, a federal consolidation loan is more attainable. While it's easier to get, there are still a few things to consider before making the leap.
Will My Interest Rates, Borrower Protection, or Terms of the Loan be Affected?
Using a Direct Consolidation for Federal Student Loans will create a new interest rate that is a weighted average of all the current federal loans you have. Since this process is structured off of your current rates, Direct Consolidation will never produce a rate higher than you already pay. The term of the loan may be adjusted to any length between 10 and 30 years. These loan consolidation efforts have no fees attached and also allow complete retention of borrower protection.
Let’s Look at the Advantages and Drawbacks of Using a Direct Consolidation Loan
First the pros: Direct Consolidation of Federal Loans works like other consolidation processes, streamlining your monthly payments into one package to promote an easier billing system for you, the borrower. The government also offers flexible repayment options that you will be able to take advantage of.
Next the cons: The Direct Consolidation Loan does not save you any money. Since the system in place to calculate your new interest rate is a weighted average of what you already pay, your current rates are maintained. If you choose to extend your loan term beyond what you current have, the interest over a longer time may result in paying even more than before through this consolidation technique.
The Direct Consolidation Loan provided by the Federal Government produces a fixed rate, not a hybrid or adjustable rate, and this process is irreversible. Deciding if this is the right process for you is essential before moving forward and consolidating. It is very important to note that you can refinance at any time through a private lender. Check out LendEDU’s options for refinancing to learn more about how you can save money on top of consolidating your student loans.