Consolidating Federal Subsidized Loans

All federal education loans, such as the Stafford program are guaranteed. The federal government makes sure the lender will receive its money, even if the borrower can't pay. That guarantee is why lenders will lend at better rates, and to people who are worse credit risks, than they otherwise would.

Federal Loan Types

Some federal loans are also subsidized: the federal government will pay interest charges while the borrower is in school and for 6 months after graduation, or during any valid deferment or forbearance (i.e. payment "holiday") periods. Typically only available to lower-income borrowers, these loans can greatly reduce the cost of a college or university education.

Borrowers can be overwhelmed by their school loans. When they are, one option is to consolidate the loans—to replace a number of different loans with a single one at a lower interest rate and/or monthly payment. Consolidating college loans can make the difference between being able to afford post-college life or not.

Consolidating School Loans

Yes. Loan student loan consolidation is available for federal subsidized loans. That's true even for loans made by the Department of Education rather than a bank or other traditional lender—direct loan consolidation is available, too.

Reasons to Consolidate School Loans

Remember, when you consolidate debt—any debt, including consolidating school loans—you take on a new loan that's used to pay off the previous loans, replacing them. The new loan will be taken out at then-prevailing interest rates, so it may be at a better rate than the older loans; also, when you take out the consolidating loan, you can often borrow for a longer time period, stretching out repayment and therefore lowering your monthly obligation.

  • Advantages: less debt to keep track of; may be able to get a lower interest rate; if the period to repay is stretched out, the monthly payments are reduced.
  • Disadvantages: if total payment time is increased, so is the total amount of interest that will be paid; loans cannot be "unconsolidated," so the borrower loses the ability to pay them off piecemeal or one at time—it becomes "all or nothing" repayment.

Federal Subsidized Loan Consolidation Legal Help

As you can see from the fact that there are both pros and cons, the question of whether to consolidate is not necessarily simple. There are a lot of ramifications and wrinkles to consider, including the fact that student loans are generally not dischargeable in bankruptcy—so if you replace several smaller loans with one large one, you're taking on a large obligation that you can't get out from under other than by paying it off. Also, loan documents themselves are complex, and no one should ever sign any legal document without thoroughly understanding it. A debt consolidation attorney can help you understand your rights, options, costs, and potential liability, so you make the best decision possible for your own unique situation.

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