How to Consolidate Federal Student Loans

Consolidating federal student loans allows you to combine all your federal student loans into a single loan. While you will wind up owing more money, you will lower your overall monthly payments and you will be able to get better terms. The most common benefits are lower monthly payments and lower interest rates. It also makes paying for loans more convenient. In order to benefit, you will have to carefully complete the consolidation process. One mistake and you may wind up with worse financial burden then you had to begin with.

Preparing to Consolidate Your Federal Student Loans

Before you begin consolidating your federal student loans, you will have to gather up all your existing federal student loan paperwork. Make a note of each loan's interest rates, monthly payments, grace periods and pre-payment penalties.

Please note that in order to be eligible for student loan consolidation, you can't be enrolled in any college, in any capacity, and you cannot have any defaulted loans. 

Step 1: Consider Potential Consolidation Loan Lender Options

If you want to consolidate federal student loans, you can either consolidate them through the Department of Education or through private consolidated loan lenders. The former is simpler because the Department of Education already has all your loan information. You can save time on the filing process. However, keep in mind that you should keep your options opens because you may be able to get better terms with private lenders.

Step 2:  Narrow Down Your Options

If you decide to go with the private lender, there are a number of potential lenders to choose from. Use business directories such as Yellowpages or Googlemaps' business search function to find consolidation loan lenders closest to your residence. To avoid potential schemes, check the lenders with the Better Business Bureau and customer advocacy sites. If you have any unsubsidized federal loan, you may want to consider your existing lenders before you try anything else.

To determine which consolidated student loan is right for you, examine each potential loan and compare their repayment periods, pre-payment penalties and other fees. Check to see if their loan's interest rates are fixed or variable. Fixed interest rates increase by the same amount every year while variable rates change at different rates. You should try to strike a balance between low fees and small repayment period. Finally, consider any incentives the consolidated student loan lenders might offer and carefully check whether or not they apply to you.

Step 3: Fill Out the Application

Most lenders will have applications available online. If they don't, you can always get a paper application at any of their locations. While they are usually free, some lenders may charge a small fee. As you fill out the application, keep all your student loan information on hand. You will need to refer to it to properly complete your application.

Be sure you complete your application before July because it is the date when the interest rates change. If you are applying for a fixed rate loan, applying earlier may allow you to get better rates.

Step 4: Double-Check the Paperwork

After you apply, the lender will process your application and decide whether or not to approve it. If you are approved, the lender will send you copies of all the loan-related paperwork. Double-check to make sure all the terms and fees are listed correctly. If there are any mistakes, contact the lender and tell them about it. Be sure to be prompt about it - if you fail to do it before your first payment, you will have to pay the erroneous fee and getting the application corrected will be harder than before.


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