Loans Consolidation: An Introduction

The federal student loan consolidation program of the US government's Dept. of Education is a helpful measure intended to reduce complexity and the burden of repayment. If you have taken several student loans from federal sources to cover for your different educational expenses, you may, with the help of this program, consolidate all of them into a single loan, and make a single monthly repayment. This approach has several advantages over managing each loan separately. Let's take a look at them.

Consolidate, Fixate

First, the interest rates for many federal loans vary in accordance either with the 91-day treasury bill rate, or with the national interest rate. These rates had been going down steadily till some time ago, but they are now showing signs of climbing back up again. So you could have to pay a higher-than-anticipated rate of interest on all your federal student loans. However, once you take advantage of the federal student loan consolidation program, all your federal loans become united into one chunk of repayment, and the interest rates become fixed. The market rates could continue to rise all around you, but you'd be paying the same rate year after year.

Short-term Benefit versus Long-term Disadvantage

Secondly, the installment on the consolidated loan shows a negative synergy in the short term – that is, it is less than the sum of its parts. You would be paying less per month on the consolidated loan than you would on all the separate repayment amounts taken together. However, in the long term you might have to pay a greater total amount if you consolidate. Compare your present hardship against your anticipated future financial condition to determine whether you need this. Whether you shall participate in the federal student loan consolidation program will be influenced majorly by this factor.