When a grant recipient has to start paying back his student loans, he should look into loan consolidation. Most student loans have different interest rates, but when they are consolidated, the grantee is usually locked into a lower interest rate and easier-to-pay payments.
How Things Get Put Together
Loan consolidation means getting all of your loans from different lenders and putting them into one loan. Taking out means that the consolidator pays each lender a balloon payment for the remaining balance of the loan. By doing this, the consolidator takes on the risks of the loan. The consolidator then restructures the loan, which usually leads to lower monthly payments but a longer time to pay back the loan. But a consolidator may keep the same rates or even lower them, depending on how good the borrower's credit is. The terms change from case to case.
Different kinds of government loans to consolidate student debt
There are two main types of government plans for consolidating student loans. The first type is direct loan consolidation. This means that you are making payments directly to the US Department of Education, skipping any bank or other lender that may have given you the money in the first place.
The FFEL (Federal Family Education Loans) consolidation loan programme is the second plan. In this government plan to combine student loans, the original lender and the federal government work with a new lender. There are standard student loans like Stafford loans, PLUS loans, and Perkins loans that are part of this plan.
But some states also have government programmes that help people consolidate their student loans. These programmes are paid for by the state treasuries. They are also competitive in terms of repayment and interest rates, and the plans are often made to fit the specific needs of a state or university.
Alaska, Arizona, Hawaii, Indiana, Kansas, Maryland, Mississippi, Nevada, and Wyoming, which don't have state-funded programmes, use USA (United Student Aid) Funds to back up their government student loan consolidation programmes.
Direct Consolidation Program Pros and Cons
In this programme, the government continues to pay for the interest on loans that have been subsidised, and deferments that have already run out can be renewed. No other private or government student loan consolidation programme is as easy to get these benefits. When you get a loan through a private programme to consolidate, you usually have to pay more in interest.
What are the benefits of consolidating state student loans?
Since state loan consolidation programmes are more place-based, they tend to be more forgiving and flexible. Many states offer benefits for on-time or early payments, lower interest rates on balances that are going down or offer direct withdrawal or deferment options for students who qualify.
Most of the time, your state can give you the best options for consolidating government student loans. Don't pass up the chance to see them.
In the end, no matter how you look at it, taking advantage of a state or direct government student loan consolidation programme will help the person trying to pay off his student loans in more ways than just making life easier.
