Federal Student Loan Consolidation 101

Federal consolidation loan is a loan program offered by the U.S. government to individuals with standing education loans who are having difficulty in repaying their debts. This loan refinance program simplifies the borrower's repayment process for all the federal student loans incurred in college.

How loan consolidation works

If the individual has two or more existing education loans, the federal consolidation loan combines all loans and converts multiple debts into a single larger one. Through this program, all of the debtor's existing loans are completely paid off and a new loan is created. When the new consolidated loan is applied, the borrower only has to budget for one single monthly payment.

Benefits of loan consolidation

Federal consolidation loan is an advantage to borrowers for the following reasons:

  • Lower interest rates - Paying for more than one loan constitutes higher interest rates. However, with a federal consolidation loan, the borrower only pays a single loan with a low and fixed interest rate.
  • Lower loan payments - Having a single loan, instead of two or three, cuts down your monthly payment. A federal consolidation loan can trim down your monthly payment by as much as 50%.
  • Longer terms - Compared with other education loans, a federal consolidation loan offers a longer term of repayment for borrowers. Depending on one's unsettled loan balance, the repayment term can be extended up to 30 years.

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