Jun 22

The price of a higher education these days is off the charts and for many students this means taking out student loan after student loan just to stay enrolled and in the financial “good graces” of the school.  But what happens after graduation?  What happens when it finally becomes time to begin repaying these loans?  Are you supposed to make separate payments each month to each of the loan programs from which you borrowed?  The answer, unfortunately, is yes, however there is another option—an option which will allow you to combine these monthly obligations into one flat monthly payment:  National Student Loan Consolidation.

What is National Student Loan Consolidation?

The National student loan consolidation program allows students to combine the debt from 2 or more student loans (with various terms and interest rates) into one loan with a single interest rate and a manageable repayment schedule.  Loans that qualify for this program include all of the following:

  • Stafford Loan (either subsidized or unsubsidized)
  • Perkins Loan
  • PLUS Loan
  • Health Professions Student Loan (HPSL)
  • Health Education Assistance Loan (HEAL)
  • Nursing Student Loan (NSL)
  • Federal Direct Loan Program (FDLP)
  • SLS Loan (formerly ALAS Loans)
  • Federal Insured Student Loan (FISL)
  • Consolidation Loan

To qualify for consolidation consideration you must either be in your 6-month grace period or already repaying your loans to two or more of the above mentioned programs.

The Advantages and Disadvantages of National Student Loan Consolidation

Before you jump into student loan consolidation blindly, there are some things you should consider first.  Among these are:

Interest

With National student loan consolidation the interest rate on your new loan is not a set rate, but rather a weighted average of the cumulative interest totals of all preexisting loans, rounded to the next highest 1/8 percent.  For example if you have 3 existing loans, with interest rates of 5, 6 and 7 % respectively, the average rate is 6 %.  This is the interest rate you will pay on your new loan, even if the larger amount you owe—the loan with the highest balance—currently charges only 5% interest.  To avoid paying an extra 1% unnecessarily, check your balances carefully and perform the necessary calculations.  You may find it cheaper in the long run to NOT consolidate, but with that being said, on average most people will save money through consolidation.

Note:  The maximum interest rate for a student loan consolidation is currently set at 8.25 %.

Repayment

The National student loan consolidation program offers a number of different repayment options for you to choose from.  For instance, you can choose a standard repayment, which is a set payment for a predetermined amount of time; a graduated payment plan, in which you’ll pay less money during the early part of the loan and more money as you become more established; an income-based repayment, which is a payment based on your income for the life of the loan; or, if applicable, an extended repayment plan with the flexibility to change your repayment plan once a year. With all of these options you will repay the loan over 10 to 30 years, depending on your total student loan debt.

If you are tired of struggling with two or three loan payments, and you feel a student loan consolidation would make managing this debt a bit easier, check with your lending institution to see of you could benefit from this type of loan repayment structure.  In most cases, repayment of current loans can be suspended while the details of your consolidation loan are worked out.