Federal Student Loan Consolidation

Federal Student Loan Consolidation - What is this?

Federal student loan consolidation may be a fixed-rate refinancing program that place along all of the student's existing federal student loans into one new loan.

Brief history

The Federal Loan Consolidation Program was developed within the U.S.A in 1986. The us congress within the year 1998, calculated the weighted average of the interest rate of the loans being consolidated to the interest rates of the loans being consolidated, assigning comparative weights in keeping with the amounts
borrowed, rounded up to the closest zero.125%, and restricted at eight.25% effective February one, 1999.

Consolidation loans taken out before that date had a variable interest rate, established by the individual programs loan origination.

Various programs

In the U.S 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 in a sole debt.

This results in condensed monthly repayments and a longer term for the loan. Contrasting the other loans, consolidation loans have a fixed interest rate for the life of the loan.

Government involvement in 2005

In 2005, the government accountability office considered merging consolidation loans so that they were entirely managed through the FDLP.

It concluded that while doing so would invite an additional cost of forty six million dollars, caused by the higher administrative costs of the FDLP compared to the FFELP.

This would be counterbalance by three thousand one hundred million dollars savings comprised in part of avoiding two thousand five hundred million dollars in subsidy costs.

These conclusions were 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.

Federal Perkins loan

Named after Carl D.Perkins, a former member of the U.S House of Representatives from Kentucky, a federal Perkins loan is based on the need to support financially deprived American students after their post secondary education.

It is offered by the U.S Department of Education. Perkins Loans carry a fixed interest rate of five percent for the period of the tem repayment period.

The Program has a nine-month grace period, so that borrowers begin repayment in the tenth month upon graduating, falling below half-time rank, or withdrawing from their college or university.

Since the Perkins Loan is subsidized by the government, interest does not begin to accumulate until the borrower begins paying back the loan.

The loan limits for undergraduates are four thousand dollars per annum with a duration maximum loan of twenty thousand dollars.

For graduate students, the limit is six thousand per annum with a duration limit of forty thousand dollars -counting undergraduate loans.

Perkins Loans are suitable for federal loan deletion for teachers in selected low-income schools, as well as those in selected teacher shortage areas such as math, science, and bilingual education. A percentage of the loan is cancelled for each year spent teaching full time basis.

Federal Family Education Loan Program-FFELP

The Federal Family Education Loan Program (FFELP) is a program for United States Department of Education, that offers for private organizations to market, originate and service federally warranted loans such as Stafford and Plus loans to both students and their parents.

The private institutions that participate in FFELP include non-profit as well as profitable organizations. These can realize profits on these loans by collecting origination fees and with an interest margin.

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