Federal student loans are either granted directly to students or granted to parents. This article focuses upon consolidation and servicing aspects of federal student loans, directly made to students. For education purposes, students can apply for loans as financial aid and the same are categorized as federal loans in United States.
Payments against the federal student loan to students do not start immediately. In fact for disabled it is possible to get the entire loan discharged and for those who decide to serve low income areas, there is the option of applying for other subsidies. But in case of all others, the loan must be repaid.
Federal Student Loan Servicing
Loan servicers are agencies which collect and manage loans and thus perform all tasks related with loan servicing. Servicers respond to borrower enquiries and manage the loan portfolio, by undertaking all related administrative duties. When a student faces difficulties in repaying the loan/s, services of federal student loan servicing agents can be sought for loan consolidation.
Federal Student Loan Consolidation
Managing too many loans could get difficult, especially for a student. In such circumstances, a viable option is student loan consolidation. Loan consolidation is a process which combines the various federal student loans into one new consolidated loan. This is especially useful for those unable to cope up with too many payment heads to be managed every month. Also usually different loans have different interest rates and these calculations every month are a tiresome process. The new consolidated loan will have one fixed interest rate, which would eliminate the fuss of monthly interest rate calculations.
A highlight of loan consolidation is the changed repayment pattern. Students, who are unable to gather enough finances to repay their bills on time, can seek assistance from loan consolidation. The new loan usually comes with a lower interest rate and payments stretched over a longer period. The idea is to give more time to the borrower and thus enable easy repayments. In fact, borrower can opt from various payment options, and decide upon the most suitable.
The plans take into account borrower’s current stature and income stream. Loan consolidation allows students to re-modify the loan terms. With the loan consolidated, now there is just one borrower to deal with. Unlike earlier, now for different loans, different lenders need not be consulted. To qualify for consolidation, there must at least be one loan which is deferred or in grace or to be repaid.
When considering student loan consolidation, do keep in mind that eventually the loan cost is increasing because now months have been added to the loan period. Thus while you pay smaller amounts every month, the payment horizon increases thereby making you pay higher interest charges, over the life of loan. For instance federal student loan consolidation and servicing of a 10 year loan will increase the repayment time to say double i.e. 20 years and thus substantially reduce monthly interest charge. However now you pay for double the time and reductions in charges are less that 50%, thereby in totality, making you pay more.
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