How to Consolidate Student Loans – Federal Government Student Loan Consolidation

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When you were in college, thinking about repaying your student loans probably was one of the last things on your mind. And if you thought about it at all, it’s unlikely that you even considered how to consolidate student loans, let alone a federal government student loan consolidation.

If you’re like many students who had little or no financial support when you were in school, you may have taken out several loans just so you could stay in school and keep a roof over your head. And if you’ve just graduated and have several outstanding student loans, there’s a good chance you’ve added up what you owe and that reality has checked in – with a vengeance.

Like many other young graduates, it may seem as if you’re locked into repaying anywhere from $400 to $1,000 or more per month for a long, long time.

If you’re in this situation, a student loans consolidation could be a very welcome option. Student loans consolidation makes it possible to combine all of your loans into one package. Not only will your multiple payments be reduced to one payment, the amount you pay can decrease as well.

Federal Government Student Loan Consolidation

If you have several existing Federal education loans you may be able to consolidate them into one new consolidated loan.

If you have both private and federal loans, most experts advise that you begin by consolidating your federal loans before consolidating your private loans. That’s because the federal loans have a federally governed lower interest rate and permit repayment terms for as long as thirty years.

Let’s say that you have both a Federal Perkins Loan and a Federal Stafford Loan and you are a recent graduate. Although you typically have a six month grace period, with the economy as well as the job market where it is, it may be difficult to pay back your loans once your grace period is over.

With a federal government student loan consolidation of these two loans you might be able to lower your upcoming monthly payments by as much as 50%.

Most federal government student loan consolidation programs offer four categories of repayment options. They are a standard repayment plan, the extended repayment plan, the graduated repayment plan, and the income contingent repayment plan.

Standard Repayment Plan

This plan has the highest monthly payments. It offers fixed monthly payments for a maximum of 10 years.

Extended Repayment Plan

This plan has smaller than the standard repayment plan. However you will pay more interest. This plan also offers fixed monthly payments. They will continue for between 12 and 30 years, depending on the amount that you borrowed.

Graduated Repayment Plan

This plan will cost you more in interest payments than the standard repayment plan. It offers lower payments for the first two to five years that will then increase for the next ten years, as your income rises. Income

Contingent Repayment Plan

With this plan your payments will be determined by your income, the total amount you owe, and the size of your family. You will repay this loan for up to 25 years.

Currently, the rate for your consolidated loan will be fixed for the life of the loan and cannot exceed 8.25%. The downside is that your repayment term will probably be longer. In the end you might end up paying considerably more than you would with your current loan schedule.

However, if you are unable to comfortably make your payments as they now stand, you may want to consider a federal government student loan consolidation because, on a day-to-day basis, it can substantially ease your burden.

Income Based Repayment

If you are considering a federal government student loan consolidation you may also want to take a look at this new repayment plan.

This very attractive option, available for federal loans from July 1, 2009, caps your payments at 15% of your discretionary income. Your discretionary income is any income that is 150% above of the poverty line.

For example, if you’re a single person living in “the lower 48”, your poverty guideline is $10,830. Because 150% of $10,830 is $16,245, if you are unemployed or if you earn less than that amount, you would not have to pay anything towards your loan with this plan.

Let’s look at another example. Say you’re currently earning $30,000 per year and that you owe $20,000 in federal student loans. The difference between $30,000 and $16,245 is $13,755.

Fifteen percent of $13,755 is $2,063.25, so on a monthly basis the maximum you would have to pay $172.

It is important to take the time to do as much research as possible before making your decision because the right choice can save you both heartache and a lot of money.