The federal program allows the students with many loans to consolidate them into one so that they enjoy the streamlined payments. This, however, comes with various drawbacks and benefits. Consolidating the different loans into one makes lots of financial sense since it keeps the student on top of their payments. This is because the many loans are usually bundled into one, therefore, simplifying the repayment plan. The student debt consolidation rates differ from one lender to another. This blog explores the various facts about the student loan consolidation.
The direct loan consolidation empowers the students with loans to seize the various opportunities of the different income-based programs. Some of these programs advocate for the writing off of some of the loans depending on the repayment circumstances of the borrower. However, unlike some of the private loan consolidation services, the direct student loan consolidation does not offer lower interest rates through the consolidation.
Under this program, the borrower with different student loans like the federally insured student loan and supplemental loans for students can combine them into one. Some of the facts that the borrower needs to know about the direct consolidated loan are:
Adds an interest of about 0.125%
The borrower should know that once he consolidates the student loans that he has an interest rate of about 0.125% will be added. The federal government usually exchanges the prior loan with a single consolidated loan. The borrower of the loans often receives interested average that is weighted on the previous loans. It is usually rounded up by an eight of one percent.
Do the math
Before consolidating their loans, the borrowers are advised to do their math. This is to bring them to the same page with their lenders. There are many online tools that they can use to calculate the different rates based on the new interest rate. Websites that have the direct online application have the calculators which the borrowers can use to calculate the new tariffs.
It is important to note that the term limits can change under the loan consolidation. The default time frame for the student loans is usually ten years. When the loan is consolidated the period changes between seven and 30 years depending on the repayment schedule and the balance of the borrower.
Rehabilitation of the loans in default
One of the advantages of the student loan consolidation is that it can rehabilitate the loans that are in default. The financial experts say that consolidating the loans that default is usually quicker than the rehabilitation of the multiple loans. One benefit of the rehabilitation is that it can remove the default status from the given credit report.