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Amid the student loan crisis and the impending termination of COVID-19 student loan relief programs, federal loan borrowers are starting to feel the added pressure of payments coming due in May of 2022. It may even be bad enough that you are worried about needing to file for bankruptcy. Does this sound like you? If so, please continue reading. I will go through some other options that may be available to help reduce your monthly payment. 

What is a Federal Direct Consolidation Loan?

The most beneficial choice for borrowers would be a Federal Direct Consolidation Loan. This combines all of your federally-funded loans into one loan with one payment and one interest rate. Unfortunately, this program does not consolidate private loans.

However, when it comes time to repay your federal loans your private student loan balance will be factored in when deciding your monthly payment. I went through this process when I completed my undergraduate program. Companies bombarded me with offers. They claimed they would either process the consolidation for me, OR they would provide me with a consolidation loan. Be wary of other sites or companies that offer to consolidate your loans for you. Many companies offer student loan refinancing. However, that is different from consolidating your existing federal loans into a new federal loan. If you choose to go that route, make sure you fully understand all payment terms. Also, understand that you will lose all access to federal payment relief options. 

Personal Experience

I graduated with a bachelor’s degree in psychology and public health. Upon graduation, I had a staggering $105,000.00 in federal student debt, $30,000.00 in private loans. In addition to those loans, throughout the duration of my undergraduate career, I put approximately $15,000.00 worth of educational expenses on my credit cards. I chose to take advantage of this loan consolidation program because my first payment on the standard repayment plan would have been $1785.16. On the income-driven repayment plan, it would have been $1011.89.

Both of those numbers were seemingly impossible for me to pay each month. I could have made the payments if I moved back in with my parents and ate only ramen for breakfast, lunch, and dinner. As a young twenty-something, I opted for the federal loan consolidation. Not only did I achieve a much lower payment of $639.00 I also reduced my overall interest rate by 2.75%! More of my monthly payment will go towards my principal, allowing me to pay off my loans sooner. I was able to pay more towards my private loans and credit cards. 

Continued Education Costs

I recently went back to school to pursue a master’s degree. Since my loans are consolidated with the federal government, my payments are paused while I am in school. When I graduate, I will be able to add any federal loans I used for my graduate degree to my existing consolidation loan. 

Prior to returning to school, I started the home buying process. I was unable to qualify for a mortgage that would allow me to buy a home in the area I lived in at the time, solely because my payment was too high. I would not have enough income left to make mortgage payments. Once I completed the consolidation process and it reflected on my credit report I re-applied and I was approved for 2.5 times the amount I was before.

My income did not change. The only change I made was the consolidation of my federal loans and the reduced payment. Federal loan consolidation has more benefits than just monthly payments! If you or someone you know is struggling to make your payments or worried about your budget when student loans come due in May, then I strongly suggest taking a look at federal loan consolidation, it does not cost anything to apply, and is open to all federal student loan holders. You owe it to you and your future self. Check it out, you have nothing to lose!

How would this help me? It sounds too good to be true, what are the negatives?

Primary benefits of federal loan consolidation include:

  • Lower monthly payments, with repayment terms of up to 30 years, vs the standard repayment plan.
  • Any variable rate loans will be consolidated to a fixed interest rate.
  • All loans that are consolidated may be eligible for the Public Loan Forgiveness program as well as other repayment plans such as income-driven repayment and pay as you earn.

A few cons of this program are:

  • You may pay more in interest over the term of your loan due to the increased repayment period.
  • You may have a higher principal upon successful completion of consolidation since the interest on your interest baring loans will be added to the balance.
  • Any loans that you have made payments on that qualify for income-driven repayment forgiveness you will lose all the credit. However, you do not have to consolidate all your eligible loans, if this is the case for you, you do not have to consolidate all your eligible loans. You can pick and choose which loans you would like to consolidate. 

Who is eligible to consolidate their federal student loans into a single consolidation loan?

In most cases, you are eligible for this program after you graduate, leave school, or drop below half-time enrollment. If you are behind on your loan payments, you will need to bring them up to date and make 3 on-time payments. Loans that are currently being collected via wage garnishment or court-ordered payments are not eligible for consolidation unless you either get the judgment vacated or have the wage garnishment lifted. 

How do I apply for federal loan consolidation? is the only site where you can take advantage of this program. The entire process from start to finish is about 30 minutes. Any federally-funded student loans are eligible. One benefit of this program is that if you decide to return to school, your payments will be paused. Also, any federal loans that you take out can be added to your consolidation loan when you are done with school.


Post Author: Ascend

Group of guest writers and industry experts who have specific expertise in Chapter 13 bankruptcy, Chapter 7 bankruptcy, debt relief, debt settlement, and debt payoff.

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