Even though your family’s PLUS loan has a low interest rate, it may be that when payments to all sources of loan funding are combined, the monthly payments are not affordable. That’s why the Federal Consolidation Loan program was created. This program was developed to assist you with managing your debt. If you have several different loan payments but would like to make just one payment, you may apply for a Federal Consolidation Loan.
With loan consolidation, your lender combines your existing federal loans into a new single loan. The interest rate may be lower than on one or more of the underlying loans. In addition, the monthly payment amount on a consolidation loan is usually lower and the amount of time to repay may be extended beyond what was available in the separate loan programs.
Currently, the interest rate for a Direct Consolidation Loan is based on the weighted average interest rate on the loans being consolidated, rounded to the next nearest higher one-eighth of one percent. This rate is fixed for the life of the loan and cannot exceed 8.25 percent.
Alternatively, your lender may provide a federal loan consolidation program with extra benefits such as discounts for on-line payment.
There are a variety of advantages to loan consolidation. For example,
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There is usually one monthly payment to one lender and the amount is usually less than the combined amounts of the precursor loans.
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You will continue you to have the variety of repayment options that are available for a PLUS Loan. (Please see our article on PLUS loan repayment.)
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If you consolidate while in-school, you may receive a 6-month grace period before repayment begins.
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Consolidation Loans offer several deferment options. If you have exhausted the deferment options on your current Federal education loans, a Direct Consolidation Loan could renew those deferment options.
The disadvantage to the consolidation approach is that if your payment period is extended, you may pay more interest over the life of the loan that you would have paid over the shorter period.
PLUS loan consolidation is an excellent way to manage educational debt.
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Loan Consolidation
