Federal Student Loan Consolidation

In the U.S., the Federal Direct Student Loan Program (FDLP) includes consolidation loans that let students to combine Stafford Loans, PLUS Loans, and Federal Perkins Loans into one single debt. This scheme helps reducing monthly repayments and increases the term for the loan. The best part of the Federal Student Loan Consolidation is that unlike some other loans, these loans have a fixed interest rate for the life of the loan.

Interest rates and payments

Consolidation loans have longer payment duration compared to other loans. Debtors can decide on terms of 10–30 years. Even though the monthly repayments are lower, the total amount paid back during the repayment is higher than what would be paid on other loans.

The method of Calculation

Under this scheme, the fixed interest rate is calculated to the weighted average of the interest rates of the loans which are consolidated, assigning relative weights depending on the amounts borrowed, rounded up to the nearest 0.125%, and capped at 8.25%. Some attributes of the original consolidated loans, such as post-graduation grace periods and forgiveness circumstances (in extraordinary situation), are not carried over into the consolidation loan, and consolidation loans are not generally appropriate for all debtors.