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under Title IV of the Higher
Education Act as amended. Because of instances where more than one
student loan has to be made, a lot of confusion arises by the time
repayments have to be made. When caught in this bind, students can
opt to consolidate federal student loans. To consolidate a loan means that
a debtor chooses to combine two or more of their federal education
loan into one account. This new loan offers new terms and conditions
which are advantageous for the debtor.
When you decide to consolidate
your federal student loans, there is no need for several monthly
repayments to be deposited into separate loans or accounts. Because
the consolidation has rolled the loans into one, only one payment is
to be made by the debtor monthly. This will ease the burden out of
the debtor's monthly budget. Not only is this option convenient, but
it is also a way to maintain a student's credit rating.
Loan consolidation itself gives
the debtor lower monthly payments when compared to the combined
amount made separately to different student loans. Having only one
lender, a debtor can now manage their finances more effectively.
The consolidated program will
give the debtor flexible repayment options which will consider the
needs and capabilities of the debtor to pay monthly. Although, one
must take note that the longer the time of the repayment is, the
higher the total amount of the debt will be. This is because
interest rates are proportional to the amortization period.
A
consolidated student loan can either be subsidized or unsubsidized.
Although the two has different terms and conditions, both are
guaranteed by the US Department of Education either directly or
through guarantee agencies.
When
a federal student loan is subsidized, the federal government makes
interest payments while the student is still in college. This will
leave the borrower the same amount of the loan made or without the
interest by the time payment starts after the grace period of six
months ends.
On
the other hand, when a loan is unsubsidized, the interest is
included in the accumulated total that the debtor must pay after
graduation or after the grace period of six months. With
consolidation of federal student loans, the debtors can also retain
the subsidy benefits on the loans made.
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