Why Consolidate direct Loan Debts?

If you are aspiring to go for a college education and intending to take out a loan for that purpose, you may have heard how many people like you consolidate direct loan debts to reduce the repayment burden. What is this thing all about? Let's find out.

Federal education loans, specially those given out directly to the student, have a strict limitation on the amount disbursed. Let's take Stafford and Perkins loans as examples. With an unsubsidized Stafford loan, you can get a maximum of $18500 per year. With a Perkins loan, you get only $6000 per year, and the total loan amount over your education period may not exceed $40000. Clearly, then, you shall need to take out several loans if you must cover all education costs through financial aid. This creates a problematic situation when the time comes for repayment. And that is when you shall want to consolidate direct loan debts to reduce the burden on you.

Advantages of Consolidation

Managing several direct loans at once is an extra headache you need not take on yourself. There is an option to consolidate direct loan debts into a single loan which you repay through only one big installment per month. And that installment is lower than the sum of its parts – you end up paying less per month than you would have, if they remained separate. The interest rates are lowered a bit from the average of your separate loans, and they become fixed at that rate for the rest of the loan term.

Caveat – Are You Paying More or Less?

This may sound good if you're living in times of rising interests, but there's something else you need to consider. When you consolidate direct loan debts, you also increase the loan term – potentially up to thirty years – and thus you may end up paying more over the life of your loan than you would without consolidation. So consider your priorities carefully before you opt to consolidate direct loan debts.