How a Student Loan Consolidation Program Can Solve Financial Woes

Students and graduates face more than just exams and the pressure to maintain high grades. They also have to tackle the college debt that can amass over their college careers. Whether in college or after graduating from it, the pressure to repay debts of as much as $50,000, is extremely high. Thankfully, student loan consolidation programs can make the task much easier.

With limited income, students can find it very difficult to repay the numerous loans they have taken out - often 4 or more. And because each loan has its own interest rate and repayment schedule, the monthly costs can be very steep. The skills of managing college debts come down to clearing them in a way that is affordable.

And this is where consolidation works so well. While student loans can weigh down on students and graduates alike, the right consolidation program can see the debts cleared once and for all.

The Benefits of Consolidation

Choosing the right student loan consolidation program is important to get the very best out of the scheme. Otherwise it will see a large debt replaced by just another large debt, leaving the borrower in the same difficult financial position they were in in the first place.

Multiple loans create a complicated debt system, with each debt having its own terms. For example, 4 loans mean 4 different interest rates and 4 different repayment terms. It makes managing college debt very difficult, with 4 chances of missing a repayment.

But by replacing these debts with one single loan, with one interest rate and one repayment term, the costs plummet. Interest payments fall, and the longer term of the consolidation loan means lower monthly repayments are needed. So, a far more affordable debt replaces the numerous student loans.

Federal Student Loan Debt

It is worth noting that there is a difference between private and federal loans. When federal loans have mounted up, then a federal student loan consolidation program is needed. Private consolidation programs are open to anyone who wants to restructure their debt, but federal programs are more exclusive.

There are some very sound reasons for this. For a start, federal loans already provide considerable benefits to the borrower, with low interest rates and flexible repayment schedules. Federal consolidation programs include Direct Loans and FFEL Loans. The core difference between the two is that the US Department of Education issues Direct Loans to applicants. FFEL Loans are issued by private (commercial) lenders but are subsidized by federal government.

Given the options, the most expedient method of managing college debts is provided by Direct Loans. However, in order to secure an FFEL Loan, a deal has to be made with the commercial lending firm to buy out the existing student loans, with government subsidization keeping interest rates low.

Finding the Right Consolidation Program

Federal student loan consolidation programs are exclusive to students who are in need of assistance. They are designed to keep students from beginning their working lives with a bankruptcy ruling on their record, while ensuring lenders get their money back. So, only students in genuine need can qualify for them.

An FFEL loan can be applied for on two possible occasions: either immediately after graduation, or when the emergency deferment introduced has finally been granted. In both cases, proof of financial difficulties is required. A common feature of a consolidation program is to extend the term of the loan, to lower the monthly repayments further.

This is a highly effective way of managing college debt but bear in mind that the debt can be extended to 30 years, meaning the student loans take a lot longer to clear. But the debt is paid and financial woes are alleviated.