A Federal Consolidation Loan is part of the family of loans available under the Federal Family Education Loan (FFEL) program as authorized by the Federal government. With a Federal Consolidation Loan, you can consolidate all or some of your outstanding education loans into a single new loan, even if your loans are currently held by more than one lender and are of different loan types. With a consolidation loan, you take advantage of these significant benefits:
- Reduce your monthly payments by as much as 45% (by applying during grace and extending your repayment terms).
- Pay no penalty for early repayment.
- Reduce your monthly bill-paying paperwork.
- No credit check, no co-signers needed and no fees.
- Get answers to all your student loan questions from a single source.
How much can I lower my monthly payments?
By extending your loan term or selecting one of our graduated repayment plans, you can lower your monthly payments by as much as 45%. Your loan counselor will help you to understand your options. In addition, there is NO PENALTY for early repayment of your loan. However, please note:
by extending your payments, your overall financial obligation may increase because you will be making payments (principal plus interest) for a longer period of time. If you do not choose to repay your loan in full prior to the end of the extended period, the total cost of your loan will be greater than what you would have paid if you had not extended the term.
In the United States both the Federal Family Education Loan Program (FFELP) and the Federal Direct Student Loan Program (FDLP) include consolidation loans that allow students to consolidate Stafford Loans, PLUS Loans, and Federal Perkins Loans into one single debt. This results in reduced monthly repayments and a longer term for the loan. Unlike the other loans, consolidation loans have a fixed interest rate for the life of the loan.
History
The Federal Loan Consolidation Program was created in 1986. In 1998, the United States Congress changed the interest rate to the aforementioned fixed rate weighted mean, effective February 1, 1999. Consolidation loans taken out before that date had a variable interest rate, determined by the individual FDLP loan origination center (e.g., in the case of a university, that university) or FFELP lender (e.g., a third party bank).
In 2005, the Government Accountability Office considered consolidating consolidation loans so that they were exclusively managed through the FDLP. Based on several assumptions about future variations in interest rates, the loan volume, the percentage of defaulters, cost estimates from the United States Department of Education, it concluded that while doing so would incur an additional cost of $46 million, caused by the higher administrative costs of the FDLP compared to the FFELP, this would be offset by a $3,100 million saving comprised in part of avoiding $2,500 million in subsidy costs.
