The Consolidation of Direct Federal Loan Debts

If you are one of those who have the ambition to go for a college education, but do not have the mean for it, you must be considering getting a federal loan. Many people like you opt for the consolidation of their direct education loans. How does it work, and why should you give it any thought? Here's the basic stuff.

Direct Federal Loan: The Problem of Multiplicity

Though there are many schemes for direct federal loan for education, none of them alone may be enough to cover all your expenses. The Stafford loans are limited to a maximum of $18500 per year, and the Perkins loans, soon to be abolished, give you only $6000 per annum. Since these loans are given out direct to students who presumably do not yet have a credit history, the ceiling is quite strict. As a consequence, you may have to take out several loans if loans are your only source of finance. This is where consolidation plays a part in reducing your loan burden.

Why Consolidation?

Managing several loan repayments at once can be a daunting task. You have a way out of the mess. Direct federal loans have this option that you can club together all your separate debts into one fat debt, and repay it through one fat installment every month. This is known as consolidation. The interest rate on your consolidated loan is worked out from an average of your previous separate interest rates, and deducting a certain percentage from that. The new value is fixated for the life of the loan, no matter whether the national rates are rising.

Why Not Consolidation?

While this sounds good, also remember that after consolidation, the term of repayment for your single direct federal loan will increase to a maximum of thirty years, and you may end up paying more over the life of the loan that you would pay separately. Consider the economics carefully before deciding whether consolidation is good for you.