A direct consolidation loan is aimed at allowing the borrower to combine (consolidate) multiple federal student debts into a single one. This simplifies the repayment process as they receive just one bill to settle. It is a short-term initiative by the Department of Education of the United States that began in January 2012 and will end in June 2012.
There are several benefits associated with consolidating. The borrowers are charged lower fixed interest rates, they have a longer time to complete their repayment and they can rebuild damaged credit if they consolidate defaulted student debts. They also benefit from deferments and forbearance if still in school. Possible disadvantages include higher total interest because of the long period of payment and loss of cancellation (forgiveness) provisions.
Eligibility to this provision requires one to have a minimum of one loan owned by the Department and this should be serviced by any of its servicers. It has to be current, delinquent, or less than 270 days. The other option is to have a Federal Family Education Loan (FFEL) that is in repayment, grace, deferment or forbearance.
There are two types of the direct consolidation loan: the traditional type and the special type. The two have several similarities as well as differences between them. In the former type, all debts are considered together under new terms. The debts in the special type, on the other hand, are considered separately with each maintaining its original terms.
The repayment term for the traditional type gives students a longer period of time to repay. This means that the monthly payments are lower. The money paid back will, however, be much more in the long run. The interest rate charged is single and fixed and is based on the average of the interest rates being consolidated. In the special type, each debt is considered separately and repaid according to the original terms. Compared to the traditional type this rate is generally a bit lower. In both types borrowers are eligible for a 0.25% reduction in interest rates as a payment incentive if they use the automatic debit system of the servicer.
There are several ways that can be used to apply for this provision: it can be done online, one can request for a copy of the application and a promissory note is mailed to them or applying through the phone by calling the Department. No fees charged for this process. It is important that one is well informed before they decide to consider this application.
It is required that the repayment direct consolidation loans begins following disbursement. The first payment is expected within 60 days. The period of payment lasts between 10 and 30 depending on the payment plan and the value of the principal amount. Deferment and forbearance are possible under special circumstances.
There are several benefits associated with consolidating. The borrowers are charged lower fixed interest rates, they have a longer time to complete their repayment and they can rebuild damaged credit if they consolidate defaulted student debts. They also benefit from deferments and forbearance if still in school. Possible disadvantages include higher total interest because of the long period of payment and loss of cancellation (forgiveness) provisions.
Eligibility to this provision requires one to have a minimum of one loan owned by the Department and this should be serviced by any of its servicers. It has to be current, delinquent, or less than 270 days. The other option is to have a Federal Family Education Loan (FFEL) that is in repayment, grace, deferment or forbearance.
There are two types of the direct consolidation loan: the traditional type and the special type. The two have several similarities as well as differences between them. In the former type, all debts are considered together under new terms. The debts in the special type, on the other hand, are considered separately with each maintaining its original terms.
The repayment term for the traditional type gives students a longer period of time to repay. This means that the monthly payments are lower. The money paid back will, however, be much more in the long run. The interest rate charged is single and fixed and is based on the average of the interest rates being consolidated. In the special type, each debt is considered separately and repaid according to the original terms. Compared to the traditional type this rate is generally a bit lower. In both types borrowers are eligible for a 0.25% reduction in interest rates as a payment incentive if they use the automatic debit system of the servicer.
There are several ways that can be used to apply for this provision: it can be done online, one can request for a copy of the application and a promissory note is mailed to them or applying through the phone by calling the Department. No fees charged for this process. It is important that one is well informed before they decide to consider this application.
It is required that the repayment direct consolidation loans begins following disbursement. The first payment is expected within 60 days. The period of payment lasts between 10 and 30 depending on the payment plan and the value of the principal amount. Deferment and forbearance are possible under special circumstances.
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Find a summary of the benefits of taking out a Direct Consolidation Loan and more information about the Public Service Loan Forgiveness program at http://howtoconsolidatemyloans.com/special-direct-consolidation-loan-its-benefits-for-the-students/ now.
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